Explore the gap between what the government spends and what it collects — and how that gap adds up to the national debt.
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The situation
The federal deficit is the gap between what the government spends and what it collects in taxes and other revenue in a single year. Whenever the government spends more than it takes in, it borrows to cover the difference — mainly by selling Treasury bonds.
In FY2025, the deficit was about $1.8 trillion — roughly 5.8% of GDP. For FY2026, which ended on September 30, 2026, CBO estimates it grew to about $2.0 trillion — roughly 6.2% of GDP, a level usually seen only during wars or recessions.
Every year's deficit adds to the national debt: the debt is simply the running total of all past deficits (minus any surpluses), plus the interest owed on money already borrowed. The total federal debt passed $40 trillion on August 18, 2026 — about 125% of GDP. About $32 trillion of that, roughly 100% of GDP, is debt held by the public (owed to outside investors); the rest is money the government owes its own trust funds, such as Social Security's. Because the debt keeps growing, so does the interest on it: in FY2026 the government paid about $1.14 trillion in interest — more than the entire military budget ($916 billion for the Defense Department).
Pros and cons
A smaller deficit means the debt — and the interest owed on it — grows more slowly, easing the burden on future budgets.
Every dollar not spent on interest is a dollar available for other priorities, whenever future Congresses decide to spend it.
Heavy government borrowing competes with businesses and households for the same pool of savings, which can push up interest rates for everyone.
Deficit spending — unemployment insurance, stimulus, automatic tax relief — cushions recessions and speeds up recovery.
Borrowing to fund infrastructure, research, or education can pay for itself over time, much like a household taking out a mortgage or a student loan.
A growing economy can carry more debt without the debt burden actually rising relative to GDP — it's the trend relative to growth that matters most, not the dollar total.
Historical context
The federal deficit has swung sharply over the past three decades — from a rare run of budget surpluses in the late 1990s to the largest deficits on record during the 2008 financial crisis and the COVID-19 pandemic.
Federal deficit as % of GDP by fiscal year; negative values are surpluses. FY2026 is CBO's estimate for the year just ended.
The US ran persistent deficits through the mid-1990s, but spending restraint, a booming economy, and a surge in tax receipts from the dot-com stock market boom produced budget surpluses from 1998 through 2001 — the only sustained surplus period in the last half-century. That reversed quickly: the 2001 recession, the 2001 and 2003 tax cuts, and the costs of the wars in Afghanistan and Iraq pushed the budget back into deficit by 2002, where it stayed for the rest of the decade. The 2008 financial crisis then drove deficits to their highest levels since World War II, as tax revenue collapsed during the recession and the government spent heavily on stimulus and bank and auto bailouts. Deficits gradually narrowed through the 2010s as the economy recovered, before COVID-19 produced by far the largest deficits on record in 2020 and 2021, driven by emergency relief spending and a sharp but temporary drop in revenue. Deficits fell sharply once pandemic programs expired, but have stayed elevated — well above pre-2008 norms — as an aging population drives up Social Security and Medicare costs and higher interest rates make servicing the growing debt more expensive.
International context
Government deficits and surpluses vary widely across countries for many reasons: how generous a country's public pensions and health systems are, how much tax revenue it collects relative to the size of its economy, and how it responded to recent shocks like the pandemic and higher global interest rates. A few countries stand out. Denmark is one of the only wealthy nations running a budget surplus, the product of a deliberate, long-running policy of fiscal discipline and a large, well-funded pension system that reduces future obligations. Japan carries the heaviest debt burden of any major economy, but has kept borrowing costs low for decades thanks to a large pool of domestic savers willing to hold government bonds at very low interest rates — a dynamic many economists don't expect to hold indefinitely. The United States runs a larger deficit than most peer economies despite a relatively strong economy, reflecting a mix of comparatively low tax collection as a share of GDP and the rising cost of an aging population's Social Security and Medicare benefits.
Considered opinion
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Deficit figures come from CBO's Monthly Budget Review and budget outlook, with analysis from the Committee for a Responsible Federal Budget; total debt comes from the Treasury's daily “Debt to the Penny” data; the long-run history uses the Office of Management and Budget's historical tables. International comparisons use the IMF's Fiscal Monitor, which covers all levels of government, so figures are not exactly comparable to US federal numbers.