Deficits and The Debt: An example.

Year Taxes Spending Deficit/Surplus Debt

1 25M 25M 0 02 27M 30M -3M 3M3 30M 35M -5M 8M4 33M 32M 1M 7M

Some Numbers for the US

• FY2010• October 1, 2009 through September 30, 2010.• Receipts = $2,165 billion• Outlays = $3,721 billion• Deficit = $1,556 billion

• Source: Office of Management and Budget• http://www.whitehouse.gov/omb/

As a percent of GDP

• FY2010• Receipts = 14.8%• Outlays =25.4%• Deficit = 10.6%

• Note: GDP = $14, 624 billion

US Debt

• http://www.treasurydirect.gov/NP/BPDLogin?application=np

• $9,059 billion, which is about 62% of GDP.

The U.S. government debt

5

5

The debt of the U.S. federal government, expressed here as a percentage of GDP, has varied throughout history. Wartime spending is typically associated with substantial increases in government debt.

• Large increase in government debt– Cannot be explained by war– Around 1980– President Ronald Reagan, 1981

• Committed to smaller government and lower taxes• Cutting government spending - more difficult politically

than cutting taxes

– Period of large budget deficits– Government debt: 26% of GDP in 1980 to 50% of

GDP in 1993

The history of U.S. government debt

6

• President Bill Clinton, 1993– Major goal - deficit reduction– And Republicans took control of Congress, 1995

• Deficit reduction

– Substantially reduced the size of the government budget deficit

– Eventually: surplus– By the late 1990s - debt-GDP ratio - declining

The history of U.S. government debt

7

• President George W. Bush – Debt-GDP ratio - started rising again– Budget deficit

• Several major tax cuts• 2001 recession - decreased tax revenue and increased

government spending• War on terrorism - increases in government spending

The history of U.S. government debt

8