U.S. Fiscal Deficit Explained: Key Facts, History, and 2025 Insights

Adam Hayes, Ph.D., CFA, is a seasoned financial writer with over 15 years of Wall Street experience as a derivatives trader. He holds advanced degrees in economics and sociology and currently teaches economic sociology and finance studies at Hebrew University in Jerusalem.

What Is a Fiscal Deficit?

A fiscal deficit occurs when a government’s expenditures exceed its revenues during a specific fiscal period. Essentially, it means the government is spending more money than it collects, often expressed as a percentage of the country’s gross domestic product (GDP) or as the dollar amount by which spending surpasses income.

It’s important to distinguish fiscal deficits from fiscal debt and fiscal imbalances, as well as from fiscal surpluses, which represent excess revenue over spending.

Key Points to Remember

• A fiscal deficit means government spending exceeds its income.
• It does not directly represent the total national debt.
• Fiscal deficits contrast with fiscal surpluses.
• The U.S. has experienced fiscal deficits in most years since World War II.

Understanding the Causes and Implications of Fiscal Deficits

Also known as a national deficit, a fiscal deficit arises when governmental spending outpaces revenue intake within a fiscal year. Governments may increase spending on social programs, defense, or infrastructure, often influenced by economic conditions and policy decisions.

Several factors determine the size of a fiscal deficit, including:

• The health of the economy—such as unemployment rates, business earnings, and inflation.
• Fiscal policies governing taxation and government expenditures.

During economic downturns or recessions, governments typically run deficits intentionally to stimulate growth, for example, by reducing taxes or increasing spending. To cover deficits, governments usually borrow funds from the public or other nations.

Deficits are reported as a percentage of GDP or as a dollar amount reflecting the difference between total revenue and spending. Crucially, only tax and other income revenues are counted—not borrowed funds.

Support and Criticism of Fiscal Deficits

Fiscal deficits are not inherently negative. Economist John Maynard Keynes famously advocated for deficit spending as a strategy to revive economies during recessions. Conversely, fiscal conservatives often argue for balanced budgets to avoid long-term debt accumulation.

Fiscal Deficit vs. Fiscal Debt vs. Fiscal Imbalance

These terms are distinct:

Fiscal Debt

Fiscal debt, or national debt, is the total amount a government owes its creditors, accumulated over years of deficits. This includes public debt (bonds, notes), foreign-held debt, and government trust funds. As of January 27, 2025, the U.S. national debt stood at approximately $36.22 trillion.

Fiscal Imbalance

Fiscal imbalance measures the gap between future debt obligations and projected revenue streams, indicating whether future spending aligns with expected income.

Fiscal Deficit vs. Fiscal Surplus

A fiscal surplus occurs when government revenue exceeds spending, allowing for investment or debt reduction. The U.S. has experienced surpluses sporadically, notably in the late 1990s and early 2000s.

• President Harry Truman achieved surpluses post-World War II.
• Small surpluses occurred under President Eisenhower in the 1950s.
• President Bill Clinton oversaw surpluses from 1998 to 2000.

Historical and Recent U.S. Fiscal Deficits

The U.S. government has run deficits since its founding. Notable spikes include:

• During the Great Depression and World War II under President Franklin D. Roosevelt, with deficits reaching 26.8% of GDP in 1943.
• Post-2007 financial crisis, President Barack Obama’s administration increased the deficit to over $1 trillion to finance stimulus efforts.
• In 2020, the deficit soared to $3.1 trillion amid the COVID-19 pandemic under President Donald Trump.
• In 2024, the deficit was approximately $1.83 trillion during President Joe Biden’s final full fiscal year.
• Projections for 2025 estimate a $1.9 trillion deficit under President Trump’s second term.

Fiscal Deficit vs. Fiscal Debt: Clarifying the Difference

A fiscal deficit is the shortfall between revenue and spending within a fiscal year, while fiscal debt is the accumulated amount owed from past deficits.

How Often Has the U.S. Run Surpluses?

Since 1974, the U.S. has recorded four fiscal surpluses, with the last occurring in 2001.

Are Fiscal Deficits Harmful?

Deficits can be beneficial by stimulating economic activity during downturns, funding social programs, and supporting infrastructure. However, persistent deficits may pose risks to economic stability and fiscal health.

What Is a Balanced Budget?

When government spending matches revenue, the budget is balanced, avoiding deficits or surpluses. Advocates argue balanced budgets protect future social programs, while critics warn they may limit necessary economic stimulus.

Conclusion

A fiscal deficit reflects a government spending more than its income, a situation common in the U.S. history. While deficits can aid economic recovery, long-term management is essential to maintain national fiscal health.

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