US Budget Deficit Hits a $2.77 Trillion in 2021, 2nd Highest
The comments below are an edited and abridged synopsis of an article by Martin Crutsinger
The US budget deficit was $2.77 trillion for 2021, the second highest on record but an improvement from the all-time high of $3.13 trillion reached in 2020. The deficits in both years reflect trillions of dollars in government spending to counteract the devastating effects of a global pandemic.
The Biden administration has said that the deficit for the year ended September 30 was $360 billion lower than 2020, as a recovering economy boosted revenues, helping to offset government spending from pandemic relief efforts.
Before the deficit ballooned during the pandemic, the biggest deficit had been a shortfall of $1.4 trillion in 2009. At that time, the US was spending heavily to lift the country out of a severe recession following the 2008 financial crisis.
As a percentage of the overall economy, as measured by the gross domestic product, the 2021 deficit represents 12.4% of GDP, down from the 2020 deficit, which was 15% of GDP.
The 2020 deficit was the highest in relation to the overall economy since World War II (29.6% of GDP in 1943). It remained elevated at 22.2% of GDP in 1944 and 21% of GDP in 1945 before retreating after the war.
In 2021, government spending increased 4.1% to $6.82 trillion, offset by an increase of 18.3% in government revenues to $4 trillion. The revenue gain reflected an improving economy as millions of people who had lost jobs at the start of the pandemic went back to work and corporate profits rebounded.
The Congressional Budget Office expects the deficit will fall to $1.15 trillion in the current budget year, and will dip below $1 trillion from 2023 through 2025 before rising again above $1 trillion for each year through 2031.
That forecast does not include the spending that will occur if Biden gets two pending measures through Congress: a $1 trillion proposal for infrastructure projects, and his plan to bolster the social safety net and combat climate change.
For 2021, interest on the debt totaled $562 billion, up $40 billion from the previous year. Much of that is due to inflation. Payments on overall debt have remained relatively stable because interest rates have stayed low, even though debt levels are surging. Total public debt now stands around 100% of total GDP.
Deficits over the next decade will likely add another $12.1 trillion to the national debt.