Fiscal Policy in the United States

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Historically, the United States government has tended to spend more than it takes in, with national debt that was close to $1 billion at the beginning of the 20th century. The budget for most of the 20th century followed a pattern of deficits during wartime and economic crises, and surpluses during periods of peacetime economic expansion. This pattern broke from fiscal years 1970 to 1997; although the country was nominally at peace during most of this time, the federal budget deficit accelerated, topping out (in absolute terms) at $290 billion for 1992. In 1998 - 2001, however, gross revenues exceeded expenditures and a surplus. In 1998, the Federal budget reported its first surplus ($69 billion) since 1969. In 1999, the surplus nearly doubled to $125 billion, and then again in 2000 to $236 billion.[1] However, the budget has returned to a deficit basis, and the estimated U.S. deficit for fiscal year 2005 was $319 billion.

As a percentage of the gross domestic product (GDP), within the context of the national economy as a whole, the highest deficit was run during fiscal year 1943 at over 30% of GDP, whereas deficits during the 1980s reached 5-6% of GDP and the deficit for 2005 was 2.6% of GDP, close to the post-World War II average.

An issue about counting so-called "off-budget" items such as Social Security, which are presently running a large surplus, complicates discussion of budget deficits, as do the inevitable attempts by the party in power to downplay the deficit, while the other party exaggerates it. Nonetheless, the Social Security Administration does not see a large surplus -- while it is an example of an "off-budget" item, its own financial woes are generally recognized by experts on both sides of the aisle.

The budget surplus for Social Security that is essentially offsetting the deficit was approximately $150 billion in 2002, increasing the deficit ratio to almost 4% from 2.6% of GDP.