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Congressonal Research Service
lInfo rmI g the legaslatiye debate since 1914
S
December 4, 2018
Debt and Deficits: Spending, Revenue, and Economic Growth
The Constitution provides Congress with the authority to
manage the federal budget through its power of the purse.
This In Focus summarizes federal budget and borrowing
outcomes and trends for federal spending and revenues.
The Federal Budget Deficit
The federal government incurs a budget deficit when total
spending exceeds revenues over the course of a fiscal year.
A budget surplus occurs when revenues exceed outlays.
Budget outcomes are dependent on general economic
conditions. Net deficits tend to decline in periods of high
economic growth due to both increased revenues (through a
rise in earnings and subsequent tax payments) and reduced
outlays (through a decline in demand for unemployment
benefits and other programs). Conversely, deficits tend to
increase in periods with lower economic growth.
The federal budget has not produced a surplus since
FY2001. Reduced revenues and increased spending led to
deficits in ensuing years, and the Great Recession and
federal response produced deficits in FY2008-FY2010
(averaging 9.0% of gross domestic product [GDP]), which
were the largest of the post-World War II era. Following a
period of smaller deficits, real deficits have increased in
each year since FY2015. The budget recorded a deficit of
4.0% of GDP in FY2018, which is larger than the average
deficit from the preceding 50 years (2.9% of GDP from
FY1968 to FY2017).
The 2018 Long-Term Budget Outlook issued by the
Congressional Budget Office (CBO) in June projects that
under current law, deficits will remain higher than their
historical average for the next 30 years, with deficits of
5.1% of GDP in FY2028 and 9.5% of GDP in FY2048.
Federal Debt
Federal debt is the accumulation of government borrowing
activity. Debt levels increase when there are budget deficits,
net outflows for federal credit programs, or increases in
intragovernmental debt. Treasury is tasked with managing
debt in a manner that maximizes transparency and
minimizes interest costs. The debt measurement generally
of chief interest to economists is publicly held debt, which
excludes debt held in federal government accounts.
Changes in federal debt reflect implicit policy choices
concerning the distribution of government activity across
generations. Debt increases in one time period constrain the
choices available in later periods. Large and persistent debt
levels may reduce public confidence in the government's
ability to fulfill its borrowing obligations, which could
increase long-term borrowing costs.
Debt levels generally have grown in recent decades.
Publicly held debt was estimated to be 78% of GDP at the
end of FY2018, the highest value since FY1947. CBO's
long-term forecast projects steady increases in publicly held
debt, reaching 96% of GDP by FY2028 and 152% of GDP
in FY2048.
Congress also controls debt through the statutory debt limit,
which constrains the amount the Department of the
Treasury may borrow. The debt limit is currently suspended
and scheduled to be reinstated on March 1, 2019.
Trends in Spending and Revenue
Mandatory Spending
Mandatory spending covers spending for programs not
controlled by annual appropriations acts. It includes
spending for Social Security, Medicare, Medicaid, and
other health and old-age programs. Mandatory spending as
a share of GDP has increased gradually over time.
Mandatory outlays were estimated to be 12.7% of GDP in
FY2018 (61% of total federal spending), above the
FY1968-FY2017 average of 9.8% of GDP.
Mandatory spending is projected to continue growing as a
share of the economy, due to increased eligibility for old-
age and retirement programs, increased longevity of
participants in those programs, and rising health care costs.
The latest CBO long-term baseline projects that mandatory
spending will equal 15.2% of GDP in FY2028 (which
would be the highest value on record) and 17.6% of GDP in
FY2048. Rising Social Security and Medicare spending
explains most of those future increases.
Figure I. Spending, Revenues, and the Deficit:
FY2018, FY2028 and FY2048
30 %of GOP 30
Net Iterest
25
SDiscretianay
20....2 O tay
LRe enues
FY2:01 S Y2028 FY2048
Source: CRS graphic using Congressional Budget Office data.
FY2028 and FY2048 values are baseline projections.
Discretionary Spending
Discretionary spending covers spending for programs
controlled by annual appropriations laws, including for
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