The difference between a government’s spendings and its tax revenues is called deficit spending. When the government spends less than it received in taxes, that is called a surplus.

U.S. federal deficit spending reached a peak in 2020 at $3.1 trillion, though as a percentage of GDP the peak was 27% in 1943. From 1950 to 1980, federal deficit spending ran from around 0% to 2% of GDP, before expanding in the 1980s to 2-4%. The economic boom of the 1990s coupled with major spending reforms led to the first surplus in almost 30 years but he surplus proved short-lived as the post-9/11 wars, large tax cuts and the Great Recession tipped the country back into large deficits.

Economic growth has a strong relationship with the size of the deficit. During recessions, tax revenues tend to fall and expenditures tend to rise due to a combination of stimulus spending and automatic stabilizers (automatic stabilizers are programs like unemployment insurance or food stamps, that naturally increase in size during bad economic times as more people become eligible for their assistance).

The deficit excluding payments for debt repayment is called the primary deficit (or primary surplus). If a country has a primary surplus, then their debt will shrink over time as the amount of new debt they take on (the deficit) is less than the amount they are paying back each period.

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