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1 [1] (November 28, 2024)

handle is hein.crs/goverky0001 and id is 1 raw text is: Congressional Research Servic~ inkuming the Ieg~sIative debdie since 1914 November 28, 2024 Deficits, Debt, and the Debt Limit in 2025 The Constitution empowers Congress with the authority to manage federal spending, revenues, and borrowing through its power of the purse. Deficit outcomes represent the difference between total federal spending and revenues, and add to debt levels that necessitate federal borrowing. This In Focus summarizes federal deficit and debt characteristics, trends, and related economic policy issues, and also discusses the statutory debt limit. Fundanentan Properties The federal government incurs a budget deficit when outlays (total outgoing payments) exceed revenues (monies collected). If revenues are greater than outlays, the government incurs a surplus. Deficits are measured over the course of the fiscal year, which runs from October 1 through September 30. Deficits tend to decline in periods of relatively 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), with opposing changes leading to increased deficits in lower growth periods. Federal debt represents the accumulation of government borrowing from private citizens, institutions, domestic, and foreign governments. Debt levels increase when there are budget deficits, net outflows for federal credit programs, or increases in intragovemmental debt (debt that is held in federal government accounts). The debt measurement generally of most interest to economists is publicly-held debt, which excludes intragovernmental debt. The Department of the Treasury manages federal debt, with an objective of borrowing at the least cost to the taxpayer over time while maximizing transparency. Changes in federal debt, primarily caused by deficits and surpluses outcomes, reflect implicit policy choices concerning the distribution of government activity across generations. Net interest payments measure inflows and outflows on interest from the federal debt and are included in deficit and surplus outcomes. Increases in real debt in one period may constrain the choices available in later periods. In some cases, rising real debt may also lead future generations to bear the financial cost of choices made by previous generations without being able to express opinion on the relative benefit of those choices. Large and persistent debt levels may also reduce public confidence in the government's ability to fulfill its borrowing obligations, which could increase long-term borrowing costs. Historical Outcomes and Current Outlook The federal budget has produced deficits since FY2001. The historic economic shocks and ensuing federal responses to the Great Recession and COVID-19 pandemic generated the five largest real federal deficits since World War II, with real deficits averaging 9% of gross domestic product (GDP) in FY2009-FY2011 and 14% of GDP in FY2020-FY2021. The average real deficit in other years since FY2001 (3.2% of GDP), however, still exceeded the average from FY1973 through FY2001 (2.5% of GDP). Following a period of decreases in debt as a share of economic output, debt levels have grown in recent decades, as shown in Figure 1. Publicly held debt was 98% of GDP at the end of FY2024, roughly triple the value recorded at the end of FY2001 (32% of GDP). Figure I. Publicly Held Debt, FY1940-FY2024 (As a % of GDP) Source: Congressional Budget Office Notes: Values taken at the end of the fiscal year. The June 2024 Congressional Budget Office (CBO) forecast projects consistently high deficit increases in its 10-year budget window, with deficit values ranging from 5.5% of GDP to 7.1% of GDP in the FY2025-FY2034 period. Increases in real outlays (through rising mandatory spending commitments) and net interest obligations (through increased real interest rates) are the largest drivers of increased outlays, while relatively flat revenue totals assume that certain temporary tax provisions enacted as part of P.L. 115-97 (often referred to as the Tax Cuts and Jobs Act: TCJA) expire as scheduled. Debt levels are projected to increase to 122% of GDP by the end of FY2034. CBO's June 2024 Long-Term Budget Outlook projects that federal deficits and debt will reach 8.5% and 166% of GDP,

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