Click for ginormous chart

Source: Bianco Research

 

 

Since we are debating the deficit, debt and upcominn sequester/tax expiration, lets take a closer look at the history of the American Surplus & Deficits over time.

As you can see, going wildly into the red or black was common in the days before an income tax existed in the 19th century.

The 20th century saw the two world wars and the great depression as sources of spiking deficits relative to GDP.

Note the trend that began in the 1970s, accelerated in the 1980s and did not reverse til the late 1990s, only to start again in the 2000s.

What occurred over these eras?

The deficit eras were during the 1970s when the US went off the Gold Standard, the 1980s, during a period of huge unfunded tax cuts and massive military build up; the 2000′s saw more unfunded tax cuts, post 9/11 homeland security spending, rising military spending for 2 wars, additional domestic spending under Bush, then the financial crisis, the Obama stimulus, and even more defense spending and unfunded tax cuts and extensions.

The surplus was during the late 1990s when there was an economic boom accompanied with rising taxes.

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Surplus/Deficit As A Percentage of total debt after the jump

Click for ginormous chart

Source: Bianco Research

Category: Data Analysis, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

13 Responses to “Surplus/Deficit As A Percentage of GNP/GDP”

  1. Trevor says:

    From about 1803, and notwithstanding the wild swings, I see something like a straight line down from ~+8%, through zero in about 1900, to ~-8% today. One might wonder why that might be.

  2. CSF says:

    The chart suggests only a moderate correlation between the size of the Federal income tax and wild swings to surplus or debt. From 1861 to 1913 the income tax was negligible (just a few percent on the wealthiest Americans), yet budgets were stable. From 1913 through the 1930s the income tax went up modestly (still less than 5% of GDP), yet budgets began to show large swings (World War and Great Depression). Of course, during the 1950s and 1960s we saw high income taxes correlate with relatively stable, balanced budgets, and large tax cuts in the 1980s and 2000s helped cause deficits. However, taxes during the 1990s surplus years were actually lower than during the deficit years of the 1970s and even the 1980s. Two historical observations:
    1) Military spending leads to deficits – note the distinct valleys for the Civil War, World Wars, Vietnam War, the Reagan-Era buildup, and the recent wars in Iraq and Afghanistan.
    2) The long-term slope from the late-19th century to the present day is into deficit, a function of the relentless growth of the modern state funded by increasingly large and liquid debt markets.

  3. bartolomo says:

    Barry,
    The title is “surplus/deficit as a percentage of gnp/gdp. The chart title is “percentage of total debt”. Which is it? Thanks.

    ~~~

    BR: Ooh, let me swap the two charts — I’ll move the “surplus/deficit as a percentage of gnp/gdp” to the top and put the “surplus/deficit as a percentage of debt” at bottom/ Refresh your screen, it will show up.

  4. RightSmart says:

    The title is inconsistent with the chart, as GDP is not the same as national debt.

    I would suspect that the current deficit as % of total debt is relatively small compared to historical spikes partially as a function of the denominator being much higher today than in the past (inflation-adjusted).

  5. Lukey says:

    “The surplus was during the late 1990s when there was an economic boom accompanied with rising taxes.”

    And a political zeitgeist based on getting expansionary government under control (“the era of big government is over”). I don’t think that was inconsequential. The economy can stand higher taxes, as long as it isn’t seen as throwing good money after bad.

  6. DeDude says:

    Deficits are second grade math. They are the difference between spending and income. Increased deficits can come from increased spending and/or decreased income (corporate, income or other types of tax revenues). It would be nice to add charts for government expenses as % of GDP and government revenue as % of GDP, with arrows to the major recessions.

  7. Mike Radigan says:

    BR, you really surprised me by depicting the deficit as a percentage of GNP/GDP without mentioning debt. Debt and deficit are two very different things. Your graph needs to be put in context with the addition of a debt as a percentage of GNP/GDP graph.

  8. Angryman1 says:

    The growth of the modern state is due to the fact capitalism almost died. Thus, deficits became a tool to keep the bourgeois system going.

  9. James Cameron says:

    > Your graph needs to be put in context with the addition of a debt as a percentage of GNP/GDP graph

    See:

    http://goo.gl/qqBBn

    the fourth chart down the right side. A similar graph from the GAO can be found here:

    http://goo.gl/7wwl7

    Both show debt held by the public as a percent of GDP.

    The first graph includes CBO projections. These are from June 2011 and are a little dated, but the general picture has certainly not changed.

  10. Under present legislation, the Deficit/GDP ratio is poised to rise to 8% by 2022 from a low of 5% in 2015. Dead man walking…

    Debt Wall chart: http://trendlines.ca/free/economics/DebtWallUSA/DebtWallUSA.htm

  11. Theravadin says:

    Those huge swings in the % of surplus/deficit as a percentage of debt prior to 1900 really just point out that the US didn’t have much debt back then. The GNP/GDP chart is much more instructive… and much scarier.

  12. spencer says:

    The federal deficit as a share of gdp was:

    2010 ==10.1
    2011 == 9.0
    2012 == 8.7

    this is not what the chart shows.

  13. perpetual_neophyte says:

    BR – I would strongly recommend you look at the fiscal balance of payments while also looking at the household and foreign balance of payments. Ignoring the current account or trade deficit/surplus while looking only at the fiscal side is… less than optimal.

    I am pretty sure you are familiar with Wynne Godley’s financial sectoral balances and a number of people who have been more right then wrong on the direction of the US macro-economy over the past 5 (and in some cases 20+) years have incorporated this structure.

    Warren Mosler, Jan Hatzius, Cullen Roche, Edward Harrison, the UMKC group (Kelton, Wray, et al).