Economics » Government Budgets and Fiscal Policy » Federal Deficits and the National Debt

Federal Deficits and the National Debt

Having discussed the revenue (taxes) and expense (spending) side of the budget, we now turn to the annual budget deficit or surplus, which is the difference between the tax revenue collected and spending over a fiscal year, which starts October 1 and ends September 30 of the next year.

This figure shows the pattern of annual federal budget deficits and surpluses, back to 1930, as a share of GDP. When the line is above the horizontal axis, the budget is in surplus; when the line is below the horizontal axis, a budget deficit occurred. Clearly, the biggest deficits as a share of GDP during this time were incurred to finance World War II. Deficits were also large during the 1930s, the 1980s, the early 1990s, and most recently during the recession of 2008–2009.

Pattern of Federal Budget Deficits and Surpluses, 1929–2014

The graph shows that federal deficit (as a percentage of GDP) skyrocketed between the late 1930s and mid-1940s. In 2009, it was around –10%. In 2014, the federal deficit was close to –3%.

The federal government has run budget deficits for decades. The budget was briefly in surplus in the late 1990s, before heading into deficit again in the first decade of the 2000s—and especially deep deficits in the recession of 2008–2009. (Source: Federal Reserve Bank of St. Louis (FRED). http://research.stlouisfed.org/fred2/series/FYFSGDA188S)


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