In the United States, national debt is money borrowed by the federal government of the United States. Debt burden is usually measured as a ratio of public debt to gross domestic product.
The U.S. debt/GDP ratio reached a maximum during World War II near the beginning of President Harry Truman's first presidential term. Public debt as a percentage of GDP fell rapidly in the post-WWII period, and reached a low in 1973 under President Richard Nixon. The debt burden has consistently increased since then, except during the presidencies of Jimmy Carter and Bill Clinton.
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The United States has had a public debt since its founding in 1791. Debts incurred during the American Revolutionary War and under the Articles of Confederation amounted to $75,463,476.52 on January 1, 1791. From 1796 to 1811 there were 14 budget surpluses and 2 deficits. There was a sharp increase in the debt as a result of the War of 1812. In the 20 years following that war, there were 18 surpluses and the US paid off 99.97% of its then debt.
Another sharp increase in the debt occurred as a result of the Civil War. The debt was just $65 million in 1860, but passed $1 billion in 1863 and reached $2.7 billion by the end of the war. During the following 47 years, there were 36 surpluses and 11 deficits. During this period 55% of the national debt was paid off.
The next period of major increase in the national debt took place during World War I, reaching $25.5 billion at its conclusion. It was followed by 11 consecutive surpluses and saw the debt reduced by 36%.
Social programs enacted during the Great Depression and the buildup and involvement in World War II during the F.D. Roosevelt and Truman presidencies in the 1930s and 1940s caused the largest increase — a sixteenfold increase in the gross public debt from $16 billion in 1930 to $260 billion in 1950. When Roosevelt took office in 1933, the national debt was almost $20 billion; a sum equal to 20 percent of the U.S. gross domestic product (GDP). During its first term, the Roosevelt administration ran large annual deficits between 2 and 5 percent of GDP. By 1936, the national debt had increased to $33.7 billion or approximately 40 percent of GDP.[1] Gross debt relative to GDP rose to over 100% of GDP to pay for the mobilization before and during World War II.
The debt burden fell rapidly after the end of World War II, as the US and the rest of the world experienced a post-war economic expansion. However, growth rates in the western countries began to slow in the mid-1960's. Beginning in the mid-1970s and afterwards, U.S. government debt began to increase faster than GDP.[2]
Debt relative to GDP rose rapidly during the 1980s under president Ronald Reagan, whose economic policies increased military spending and lowered tax rates.[3][4] Gross debt in nominal dollars quadrupled during the Reagan and Bush presidencies from 1980 to 1992. The net public debt quintupled in nominal terms. Debt held by the public had declined from 28% to 26% of GDP in the 1970s, by contrast, it rose to 41% of GDP by the end of the 1980s.[5]
During the 1990s, debt held by the public had risen to nearly 50% of GDP in the early 1990s, but fell to 39% of GDP by the end of the decade. The public debt burden fell during the presidency of Bill Clinton between 1992 and 2000, due in part to tax increases under the Deficit Reduction Act of 1993, increased tax revenue resulting from the Dot-com bubble and Social Security payroll taxes.[6]
Debt relative to GDP rose due to recessions and policy decisions in the early 21st century. From 2000 to 2008 debt held by the public rose from 35% to 40%, and to 62% by the end of fiscal year 2010.[7] During the presidency of George W. Bush, the gross public debt increased from $5.7 trillion in January 2001 to $10.7 trillion by December 2008,[8] due in part to the Bush tax cuts and increased military spending caused by the wars in the Middle East.[9][10] Under President Barack Obama, the debt increased from $10.7 trillion in 2008 to $14.2 trillion by February 2011,[11] caused mainly by decreased tax revenue due to the late-2000s recession.[10][12]
The President proposes the budget for the government to the US Congress. Congress may change the budget, but it rarely appropriates more than what the President requests.[13]
Economist Mike Kimel notes that the five former Democratic Presidents (Bill Clinton, Jimmy Carter, Lyndon B. Johnson, John F. Kennedy, and Harry S. Truman) all reduced public debt as a share of GDP, while the last four Republican Presidents (George W. Bush, George H. W. Bush, Ronald Reagan, and Gerald Ford) all oversaw an increase in the country’s indebtedness.[14] Economic historian J. Bradford DeLong, former Clinton Treasury Department official, observes a contrast not so much between Republicans and Democrats, but between Democrats and "old-style Republicans (Eisenhower and Nixon)" on one hand (decreasing debt), and "new-style Republicans" on the other (increasing debt).[15][16]
Bruce Bartlett, former domestic policy adviser to President Ronald Reagan and Treasury official under President George H.W. Bush, attributes the increase in the national debt since the 1980s to the policy of "starve the beast" and an aversion for tax increases.[17][18][19][20] Similarly, David Stockman, director of the Office of Management and Budget under President Ronald Reagan, as op-ed contributor to the New York Times, blamed the "ideological tax-cutters" of the Reagan administration for the increase of national debt during the 1980s.[21]
On August 5, 2011, after Congress 2011 U.S. debt-ceiling crisis of the United States federal government, the credit rating agency Standard & Poor's downgraded the credit rating of the United States federal government from AAA to AA+. It was the first time the US had been downgraded since it was originally given a AAA rating on its debt by Moody's in 1917.[22] According to the BBC, Standard & Poor's had "lost confidence" in the ability of the United States government to make decisions.[23] The United States Treasury, political figures from both parties in the United States including the Obama administration, Mitt Romney, Michele Bachmann and John Kerry, billionaire Warren Buffett and Nobel Memorial Prize winner Paul Krugman criticized the move.
Together with the budget deficit, the political climate at the time was one of the reasons given by Standard & Poor's to revise the outlook on the US sovereign credit rating down to negative on April 18, 2011.[24] Standard and Poor's downgraded the credit rating by one notch from AAA to AA+ on August 5, 2011, for the first time ever. The long-term outlook is negative and it could lower the rating further to AA within the next 2 years.[25][26] The downgrade was met with severe criticism from the Obama administration, commentators, and other political figures.[27][28] The US still has a AAA rating from other ratings agencies.
Public debt is the cumulative result of budget deficits; that is, government spending exceeding revenues.
According to the CBO, the U.S. last had a surplus during fiscal year (FY) 2001. From FY2001 to FY2009, at the height of the Global Financial Crisis, spending increased by 6.5% of GDP (from 18.2% of GDP to 24.7%) while taxes declined by 4.7% of GDP (from 19.5% of GDP to 14.8%). Spending increases (expressed as % of GDP) were in the following areas: Medicare & Medicaid (1.7%), defense (1.6%), income security such as unemployment benefits and food stamps (1.4%), social security (0.6%) and all other categories (1.2%). Revenue reductions were individual income taxes (−3.3%), payroll taxes (−0.5%), corporate income taxes (−0.5%) and other (−0.4%).
The 2009 spending level is the highest relative to GDP in 40 years, while the tax receipts are the lowest relative to GDP in 40 years. The next highest spending year was 1985 (22.8%) while the next lowest tax year was 2004 (16.1%).[29]
The U.S. budget situation has deteriorated significantly since 2001, when the CBO forecast average annual surpluses of approximately $850 billion from 2009–2012. The average deficit forecast in each of those years as of June 2009 was approximately $1,215 billion. The New York Times analyzed this roughly $2 trillion "swing," separating the causes into four major categories along with their share:
CBO data is based only on current law, so policy proposals that have yet to be made law are not included in their analysis. The article states that "President Obama’s agenda ... is responsible for only a sliver of the deficits", but that he "...does not have a realistic plan for reducing the deficit...."[30] Presidents do not, acting alone, have constitutional authority to levy taxes or spend money; all such proposals must originate in Congress, but the President has a veto over new laws, and his priorities influence Congressional action.[31]
Peter Orszag, the OMB Director under President Obama, stated in a November 2009 that of the $9 trillion in deficits forecast for the 2010–2019 period, $5 trillion are due to programs from the prior administration, including tax cuts from 2001 and 2003 and the unfunded Medicare Part D. Another $3.5 trillion are due to the financial crisis, including reductions in future tax revenues and additional spending for the social safety net such as unemployment benefits. The remainder are stimulus and bailout programs related to the crisis.[32]
The Pew Center reported in April 2011 the cause of a $12.7 trillion shift in the debt situation, from a 2001 CBO forecast of a cumulative $2.3 trillion surplus by 2011 versus the estimated $10.4 trillion public debt we actually face in 2011. The major drivers were:
In October 2009, the Congressional Budget Office (CBO) gave the reasons for the higher budget deficit in 2009 ($1,410 billion, i.e. $1.41 trillion) over that of 2008 ($460 billion). The major changes included: declines in tax receipt of $320 billion due to the effects of the recession and another $100 billion due to tax cuts in the stimulus bill (the American Recovery and Reinvestment Act or ARRA); $245 billion for the Troubled Asset Relief Program (TARP) and other bailout efforts; $100 billion in additional spending for ARRA; and another $185 billion due to increases in primary budget categories such as Medicare, Medicaid, unemployment insurance, Social Security, and Defense – including the war effort in Afghanistan and Iraq. This was the highest budget deficit relative to GDP (9.9%) since 1945.[34] The national debt increased by $1.9 trillion during FY2009, versus the $1.0 trillion increase during 2008.[35]
The Obama Administration also made four significant accounting changes to more accurately report the total spending by the federal government. The four changes were:
According to administration officials, these changes will make the debt over ten years look $2.7 trillion larger than it would otherwise appear.[36]
This table lists the gross U.S. federal debt[37] as a percentage of GDP by number Congress since World War II.[38] The current gross federal debt as a percentage of GDP (83.4% at the end of 2009) is currently the highest it has been since the late 1940s. The debt briefly reached over 100% of GDP in the aftermath of World War II.
| Congress Session | Years | Start debt/GDP | End debt/GDP | Increase debt (in Billions of $) |
Increase debt/GDP (in percentage points) |
|---|---|---|---|---|---|
| 77-78 | 1941–1945 | 50.4% | 117.5% | +203 | +67.1% |
| 79-80 | 1945–1949 | 117.5% | 93.1% | -8 | -24.4% |
| 81-82 | 1949–1953 | 93.1% | 71.4% | +13 | -21.7% |
| 83-84 | 1953–1957 | 71.4% | 60.4% | +6 | -11.0% |
| 85-86 | 1957–1961 | 60.4% | 55.2% | +20 | -5.2% |
| 87-88 | 1961–1965 | 55.2% | 46.9% | +30 | -8.3% |
| 89-90 | 1965–1969 | 46.9% | 38.6% | +43 | -8.3% |
| 91-92 | 1969–1973 | 38.6% | 35.6% | +101 | -3.0% |
| 93-94 | 1973–1977 | 35.6% | 35.8% | +177 | +0.2% |
| 95-96 | 1977–1981 | 35.8% | 32.5% | +288 | -3.3% |
| 97-98 | 1981–1985 | 32.5% | 43.8% | +823 | +11.3% |
| 99-100 | 1985–1989 | 43.8% | 53.1% | +1,050 | +9.3% |
| 101-102 | 1989–1993 | 53.1% | 66.1% | +1,483 | +13.0% |
| 103-104 | 1993–1997 | 66.1% | 65.4% | +1,018 | -0.7% |
| 105-106 | 1997–2001 | 65.4% | 56.4% | +401 | -9.0% |
| 107-108 | 2001–2005 | 56.4% | 63.5% | +2,135 | +7.1% |
| 109-110 | 2005–2009 | 63.5% | 84.2% | +4,521 | +20.7% |
| 111-112 | 2009–2011 | 84.2% | 99.6% | +4,334 | +15.4% |
(Source: CBO Historical Budget Page and Whitehouse FY 2012 Budget - Table 7.1 Federal Debt at the End of Year PDF, Excel, Senate.gov)
Notes:
Publicly held debt is the gross debt minus intra-governmental obligations (such as the money that the government owes to the two Social Security Trust Funds, the Old-Age, Survivors, and Disability Insurance program, and the Social Security Disability Insurance program).[39]
The table below shows the annual federal spending, gross federal debt, and gross domestic product specific fiscal years.[40] The government fiscal year runs from October 1 (of the previous calendar year) to September 30, budgets are enacted before the November general elections.
| Fiscal Year | Federal Spending | Federal Debt | Gross Domestic Product | Inflation Adjustor[41] | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Billions[42] | Adjusted[43] | Increase | Billions[44] | Adjusted[45] | Percentage Increase | Billions[46] | Adjusted[47] | Increase | ||||
| 1977 | $409 | $1,040 | $706 | $1,795 | $1,974 | $5,019 | 0.39 | |||||
| 1978 | $459 | $1,093 | 5.1% | $776 | $1,850 | 3.1% | $2,217 | $5,285 | 5.3% | 0.42 | ||
| 1979 | $504 | $1,107 | 1.3% | $829 | $1,821 | -1.5% | $2,501 | $5,494 | 4.0% | 0.46 | ||
| 1980 | $591 | $1,175 | 6.1% | $909 | $1,808 | -0.8% | $2,727 | $5,422 | -1.3% | 0.50 | ||
| 1981 | $678 | $1,219 | 3.8% | $994 | $1,787 | -1.1% | $3,055 | $5,492 | 1.3% | 0.56 | ||
| 1982 | $746 | $1,252 | 2.6% | $1,137 | $1,908 | 6.8% | $3,228 | $5,417 | -1.4% | 0.60 | ||
| 1983 | $808 | $1,294 | 3.4% | $1,371 | $2,195 | 15.0% | $3,441 | $5,510 | 1.7% | 0.62 | ||
| 1984 | $852 | $1,300 | 0.4% | $1,564 | $2,386 | 8.7% | $3,840 | $5,858 | 6.3% | 0.66 | ||
| 1985 | $946 | $1,396 | 7.4% | $1,817 | $2,680 | 12.3% | $4,142 | $6,108 | 4.3% | 0.68 | ||
| 1986 | $990 | $1,426 | 2.1% | $2,120 | $3,052 | 13.9% | $4,412 | $6,352 | 4.0% | 0.69 | ||
| 1987 | $1,004 | $1,406 | -1.4% | $2,345 | $3,283 | 7.6% | $4,647 | $6,506 | 2.4% | 0.71 | ||
| 1988 | $1,065 | $1,447 | 2.9% | $2,601 | $3,534 | 7.7% | $5,009 | $6,806 | 4.6% | 0.74 | ||
| 1989 | $1,144 | $1,499 | 3.6% | $2,867 | $3,757 | 6.3% | $5,401 | $7,077 | 4.0% | 0.76 | ||
| 1990 | $1,253 | $1,590 | 6.1% | $3,206 | $4,067 | 8.3% | $5,735 | $7,277 | 2.8% | 0.79 | ||
| 1991 | $1,324 | $1,610 | 1.3% | $3,598 | $4,374 | 7.5% | $5,935 | $7,215 | -0.8% | 0.82 | ||
| 1992 | $1,382 | $1,624 | 0.9% | $4,001 | $4,703 | 7.5% | $6,240 | $7,334 | 1.7% | 0.85 | ||
| 1993 | $1,410 | $1,615 | -0.5% | $4,351 | $4,987 | 6.0% | $6,576 | $7,536 | 2.8% | 0.87 | ||
| 1994 | $1,462 | $1,642 | 1.7% | $4,643 | $5,216 | 4.6% | $6,961 | $7,820 | 3.8% | 0.89 | ||
| 1995 | $1,516 | $1,662 | 1.2% | $4,920 | $5,395 | 3.4% | $7,326 | $8,033 | 2.7% | 0.91 | ||
| 1996 | $1,561 | $1,673 | 0.7% | $5,181 | $5,554 | 3.0% | $7,694 | $8,248 | 2.7% | 0.93 | ||
| 1997 | $1,601 | $1,684 | 0.7% | $5,369 | $5,647 | 1.7% | $8,182 | $8,606 | 4.3% | 0.95 | ||
| 1998 | $1,653 | $1,721 | 2.2% | $5,478 | $5,704 | 1.0% | $8,628 | $8,985 | 4.4% | 0.96 | ||
| 1999 | $1,702 | $1,746 | 1.5% | $5,605 | $5,750 | 0.8% | $9,125 | $9,361 | 4.2% | 0.97 | ||
| 2000 | $1,789 | $1,789 | 2.5% | $5,628 | $5,628 | -2.1% | $9,710 | $9,710 | 3.7% | 1.00 | ||
| 2001 | $1,863 | $1,821 | 1.8% | $5,769 | $5,638 | 0.2% | $10,058 | $9,829 | 1.2% | 1.02 | ||
| 2002 | $2,011 | $1,929 | 6.0% | $6,198 | $5,945 | 5.5% | $10,377 | $9,954 | 1.3% | 1.04 | ||
| 2003 | $2,160 | $2,018 | 4.6% | $6,760 | $6,316 | 6.2% | $10,809 | $10,099 | 1.4% | 1.07 | ||
| 2004 | $2,293 | $2,082 | 3.2% | $7,354 | $6,677 | 5.7% | $11,500 | $10,441 | 3.4% | 1.10 | ||
| 2005 | $2,472 | $2,165 | 4.0% | $7,905 | $6,923 | 3.7% | $12,238 | $10,717 | 2.6% | 1.14 | ||
| 2006 | $2,655 | $2,249 | 3.9% | $8,451 | $7,158 | 3.4% | $13,016 | $11,024 | 2.9% | 1.18 | ||
| 2007 | $2,730 | $2,263 | 0.6% | $8,951 | $7,419 | 3.6% | $13,668 | $11,329 | 2.8% | 1.21 | ||
| 2008 | $2,931 | $2,366 | 4.6% | $9,654 | $7,793 | 5.0% | $14,312 | $11,553 | 0% | 1.24 | ||
| 2009* | $3,107 | $2,452 | 3.6% | $10,413 | $8,218 | 5.5% | $14,097 | $11,529 | 2.6% | 1.27 | ||
| 2010* | $3,091 | $2,392 | -2.4% | $11,875 | $9,247 | 12.5% | $14,508 | $11,297 | -2.0% | 1.29 | ||
Note: The values for the years 2009, and 2010 represent estimates from the source material.