Executive summary
This article is part of our wider “Dossier” In this article, we explain the mechanics of the budget and how it accumulates over time to create the sovereign debt. We then review the long-term trend of the budget and the debt over the past 100 years. We finally conclude
Technical notes
Some definitions
Normalizing macroeconomic quantities by GDP
When it comes to macroeconomic aggregates, expressing these as a proportion of GDP provides a standardized way to measure performance across different countries and over time, regardless of the size of economies. This normalization allows for meaningful comparisons of relative economic activity and national aggregates. It also allows to remove the impact of inflation: since most aggregates are measured in U.S. dollar, they tend to naturally increase over time through the impact of inflation; expressing them as a proportion of a measure that is also increasing through the impact of inflation (such as GDP), allows to remove the impact of inflation.
In this report, we will show most time series as a proportion of GDP only, for the reasons mentioned above. For some, we will also add the time series in U.S. dollars terms (nominal terms) to provide additional context on the figures mentioned in the article.
The mechanics of the budget
The annual government’s budget is the difference between the government’s revenues and the government’s expenses. When positive, the budget is referred to as a surplus, and when negative, the budget is referred to as a deficit.
Let’s take a look at each category making up the budget:
Federal revenues:
The government generate revenues mostly from taxes of all sorts:
- Individual income taxes – used to fund a variety of government programs.
- Social Security and Medicare taxes – used to fund Social Security and Medicate only.
- Corporate income taxes.
- Custom duties.
- Excise taxes.
- Miscellaneous income.
- Estate & Gift taxes.
In 2024, revenues from all sources amounted to $4.92 trillion, equivalent to roughly 17% of GDP:
Over time, government’s revenues in proportion of GDP have been relatively stable at around 15% of GDP:
Federal spending:
The government spends money each year on a variety of support programs and national services. For the calculation of the budget, the spending that is relevant is the money actually paid out by the US government, referred to as “outlays”. The government might additionally commit to future spending, called “obligations” or “obligated amounts” which are not taken into account for the calculation of the deficit. In this section, we will use the word “spending” with the meaning of “outlays”, meaning the actual amount of cash paid out by the government in any fiscal year.
The main areas of spending for the government are:
- Social Security
- Medicare
- Interest expense
- Health
- National defense
- Income security
- Veterans benefits and services
- Education, training, employment and Social Services
- Transportation
- Natural resources and environment
- Miscellaneous
In 2024, federal spending from all sources amount to $6.75 trillion, equivalent to roughly 23% of GDP:
Over time, government’s spending in proportion of GDP has averaged 19% over the past 100 years, and is on a slow but steady increase since 2000:
Spending is also traditionally broken down between Mandatory Spending and Non-Mandatory spending:
Budget:
The difference between revenues and spending is what makes the budget of the government. Let’s take a look at the historical budget balance of the United States over the past 100 years:
The budget of the U.S. government has been in deficit for almost every year over the past 100 years, with an average annual deficit of 3.3% of GDP. In 2024, the deficit reached $1.78 trillion dollars or 6.3% of GDP.
The debt:
In years where the budget is in deficit, the government must finance it, typically by borrowing funds either domestically or internationally. In certain circumstances, governments might also use available reserves to fund deficits, but this is typically not the case and certainly not an option for large deficits.
Deficits financed through borrowings are what makes up the debt. If deficits are a permanent feature of the budget, as it has been the case historically for the United States, the debt accumulates over time.