The federal government’s budget for fiscal year 2022 estimated that the fiscal year 2022 budget deficit would be $1.15 trillion. The Congressional Budget Office (CBO) estimated by July 2021 that the fiscal year 2021 deficit would be $3 trillion. The budget deficit in 2020 was about $3.1 trillion, the largest in U.S. history. The national debt was at $28.4 trillion when fiscal year 2022 began on Oct. 1, 2021. On Feb. 14, 2022, the debt hit $30 trillion for the first time. Budget deficits add to the national debt; if that debt grows faster than gross domestic product (GDP), the debt-to-GDP ratio may get too large. Since a county’s debt-to-GDP ratio is often used to measure economic growth, a ballooning ratio could indicate a potentially destabilized economy.

The budget deficit should be compared to the country’s ability to pay it back. That ability is measured by dividing the deficit by gross domestic product (GDP). The deficit-to-GDP ratio set a record of -26.68% in 1943. The deficit was then only about $55 billion, and GDP was only $203 billion, both much lower than 2022 numbers. The deficit-to-GDP ratio is much lower in 2022, even though the country is working with trillions of dollars in budget deficits and GDP. That’s because GDP is much higher than it was in 1943. GDP was nearly $24 trillion at the end of 2021. The national debt can negatively impact the economy if it gets too large. The level of debt is also compared to GDP to determine whether there’s too much debt for the economy to handle. This comparison is called the debt-to-GDP ratio (debt divided by GDP). The country reaches a tipping point if the ratio is more than 77%. That’s when lenders begin to worry about whether it’s safe to buy the country’s bonds. They think the government may not be able to pay back its debt. The debt-to-GDP ratio spiked to more than 135% in 2021.

Why the Deficit Is Less Than the Increase in the Debt

There’s an important difference between the deficit and debt. The deficit has been less than the increase in debt for years because Congress borrows from the Social Security Trust Fund surplus. The surplus emerged back in the 1980s when there were more people working than there were retirees. As such, payroll tax contributions were greater than Social Security spending, allowing the fund to invest the extra revenue in special Treasury bonds. Congress spent some of the surplus so it wouldn’t have to issue as many new Treasury bonds.

Budget Deficit by Year Since 1929

The deficit since 1929 is compared to the increase in the debt, nominal GDP, and national events in the table below. The national debt and GDP are given as of the end of the third quarter of each year unless otherwise noted—specifically, September 30. The date coincides with the budget deficit’s fiscal year-end. GDP for years up to 1947 isn’t available for the third quarter, so annual figures are used. The first column represents the fiscal year, followed by the deficit for that year in billions. The next column is how much the debt increased for that fiscal year, also in billions. The third column calculates the deficit-to-GDP ratio. It indicates that there was a surplus if numbers are in parentheses. The fourth column describes events that affected the deficit and debt. GDP is as of June 30, 2021, for 2021. The national debt increase is from October 1, 2020, to June 30, 2021. The estimated fiscal year budget deficit is from the CBO and was released on July 1, 2021. The concern is that the country won’t be able to pay its debt off. Debt holders demand higher interest to compensate for the higher risk when that happens. This increases the cost of all interest rates and can cause a recession.