Fiscal Deficit

A fiscal deficit occurs when a government's total expenditures exceed the revenue that it generates, excluding money from borrowings. Deficit differs from debt, which is an accumulation of yearly deficits.

A fiscal deficit is regarded by some as a positive economic event. For example, economist John Maynard Keynes believed that deficits help countries climb out of economic recession. On the other hand, fiscal conservatives feel that governments should avoid deficits in favor of a balanced budget policy.

Fiscal deficits have been occurring since the founding of the United States. As the secretary of the Treasury in the 1790s, Alexander Hamilton proposed that the debts incurred by the states during the Revolutionary War be repaid by issuing bonds. Many subsequent wars and recessions were financed with debt, creating large federal deficits.

Franklin D. Roosevelt holds the record for the highest federal deficits. Between financing the war and implementing his New Deal policies, the federal deficit grew from 4.5% of gross domestic product (GDP) in 1932 to 26.8% in 1943. After the war, the federal deficit was eventually reduced and a surplus reestablished by 1947 under Harry S. Truman. In 2009, as part of his stimulus program to fight off a recession, President Barack Obama increased the deficit to more than $1 trillion, or 9.7% of GDP, for the first time in history.

Since World War II, most years have yielded a budget deficit. Truman produced a surplus in 1947, followed by one in 1948 and another in 1951. After a few years of small deficits, Dwight Eisenhower brought small surpluses back in 1956, 1957, and 1960. Another occurred in 1969 under President Nixon. The next federal surplus did not occur until 1998 under Bill Clinton, through a landmark budget deal with Congress that created a roughly $70 billion surplus. The surplus grew to $236 billion in 2000. George W. Bush benefited from a carryover of Clinton's surplus with a $128 billion surplus in 2001.