Chart of the Day: Why the U.S. Deficit Has Grown

More

As raising the debt ceiling and cutting the deficit consume Washington, some people might wonder why the nation's fiscal problems have become so severe recently. Sure, the federal government spent some extra money over the past few years to try to combat the recession, but how did the national debt grow by nearly two-thirds in less than five years?

The following chart helps to explain. Like yesterday's chart, it was included in Federal Reserve Chairman Ben Bernanke's semiannual report to Congress.

budget gap 2011-q1.png

This shows the U.S. budget gap/surplus for the past two decades, as a percentage of GDP. The blue line is spending and the black line is tax receipts.

You can see that the deficit was growing in the early 1990s, but for a short time that changed. As the economy flourished in the late 1990s during the dot-com bubble, the higher Clinton-era tax rates brought in more money than the government spent, producing surpluses. In the 2000s, however, the era of surpluses abruptly ended and deficits made a comeback.

But check out the how the budget shortfall looked after the housing bubble popped. Expenditures rose in large part due to government stimulus efforts. They're only about half the story, however. At the same time, government revenue plummeted as indviduals and businesses' incomes dropped due to the recession.

And that's why the deficit got so far out of control. Spending skyrocketed and tax receipts plummeted. When you're buying more stuff, but have less money to pay for it, you dig yourself a very deep hole. That's what happened to the federal government, and now it's got to figure out a way to dig itself out.

Jump to comments
Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
Get Today's Top Stories in Your Inbox (preview)

Why Are Americans So Bad at Saving Money?

The US is particularly miserable at putting aside money for the future. Should we blame our paychecks or our psychology?


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

The Death of Film

You'll never hear the whirring sound of a projector again.

Video

How to Hunt With Poison Darts

A Borneo hunter explains one of his tribe's oldest customs: the art of the blowpipe

Video

A Delightful, Pixar-Inspired Cartoon

An action figure and his reluctant sidekick trek across a kitchen in search of treasure.

Video

I Am an Undocumented Immigrant

"I look like a typical young American."

Video

Why Did I Study Physics?

Using hand-drawn cartoons to explain an academic passion

Writers

Up
Down

More in Business

Just In