The term "Deficit" has multiple meanings in the public policy context.
A country has a trade deficit when it imports more than it exports, and a trade surplus when it exports more than it imports.
A budget deficit occurs when government spends beyond its revenues. The amount of the overspending in a fiscal year equals the annual budget deficit.
Deficit is the opposite of surplus. As of May, 2004, Democratic President Bill Clinton's administration was the last to achieve budget surpluses — and at record levels. Since then, Republicans have run large federal budget deficits. For more information, go to Economy_Under_George_W_Bush.
The cumulative, net total of all budget deficits since the founding of the U.S. federal government in the late 1700s is known as the national debt. Therefore administrations which run surpluses pay down the national debt, while governments that run deficits increase the national debt.
There are only two ways, separately or in combination, to reduce deficits (and therefore debt): increase revenues (i.e. raising taxes) or cut spending. Governments which fail to eliminate deficits must borrow funds by issuing bonds or by increasing the money supply in a process known as seignorage. Borrowing requires interest payments to lenders. Interest costs are just as real as any other government expenditure, so deficits inevitably result in even higher taxes (and/or even greater spending cuts) in the future. Wealthy Americans tend to be bondholders while middle-class and poorer Americans — and their children — bear the burden of repayment.
As deficits (and debts) grow, lenders become more concerned about the risks of seignorage — that the government will simply print money to escape its obligations. Thus lenders will demand higher interest rates, raising the costs of borrowing. Higher interest rates increase loan costs for private individuals and businesses, reducing job growth, incomes, and wealth creation.
Not all deficits (and debts) are always the greater of two evils. Governments may need to borrow for important reasons, such as fighting wars to defend against direct and severe threats to national security, and for investing in significant capital projects (dams, roads, bridges, rail systems, airports, etc.) that produce large public benefits for many years.
Budget Deficits by President and Party
(By Dwight Meredith)
From FY1962 (the first Kennedy budget) through FY2001 (the last Clinton budget) presidents have prepared forty budgets. Control of the White House was evenly divided between Republicans and Democrats with each party preparing and submitting twenty budgets. We decided to take a look at the fiscal performance of the Federal government during that period. The measurement we used was budget deficits and surpluses. We wanted to control for inflation to make the comparisons meaningful. Fortunately, the Government Printing Office publishes such information on the web. We got our data here at table 1-3. All dollars are adjusted for inflation and are expressed as 1996 dollars.
Kennedy-Johnson Administrations (FY1962-FY1969)
During the eight years of the Kennedy and Johnson administrations (FY1962-1969), the budget was in deficit for seven years. The largest deficit was $110.1 billion in FY1968. The only surplus was $13.4 billion in FY1969. The Kennedy-Johnson budgets added $250.9 billion to the national debt and averaged a yearly budget deficit of $31.36 billion.
Nixon-Ford Years (FY1970-FY1977)
The Nixon and Ford administrations ran deficits for each of their eight years. The highest deficit was $188 billion in FY1976. The lowest deficit was $11.1 billion in FY1970. The Nixon-Ford budgets added $702.7 billion to the national debt and averaged a yearly deficit of $87.84 billion.
Carter Years (FY1978-FY1981)
The Carter administration ran a deficit in each of its four years. The highest deficit was $136.6 billion in FY1980 and the lowest was $83.1 billion in FY1979. The Carter budgets added $482.8 billion to the national debt and averaged yearly budget deficits of $120.7 billion.
The Reagan Years (FY1982-FY1989)
The Reagan administration ran budget deficits in each of its eight years. The lowest deficit was $188.6 billion in FY1989 and the highest was $311 billion in FY1983. The Reagan years added $1.94 trillion to the national debt and averaged annual deficits of $242.23 billion.
The Bush (George Herbert Walker) Years (FY1990-FY1993)
The Bush administration ran deficits in each of its four years. The highest deficit was $318.5 bilion in FY1992. The lowest was $261.9 billion in FY1990. The Bush years added $1.16 trillion to the national debt and averaged a yearly deficit of $289.68 billion.
The Clinton Years (FY1994-FY2001)
The Clinton administration ran deficits in each of its first four years and surpluses in each of the last four years. The largest deficit was $213 billion in FY1994 and the largest surplus was $219 billion in FY2000. The Clinton years paid down a net $14.2 billion of national debt and averaged a surplus of $1.78 billion.
- Only 5 of the past 40 budgets have been surpluses. All 5 were by Democratic presidents.
- The twenty years of budgets prepared by Republican presidents increased the national debt by $3,800,000,000,000. The average yearly deficit under Republican budgets was $190 billion.
- The twenty years of budgets prepared by Democratic presidents increased the national debt by $719,500,000,000. The average yearly deficit under Democratic budgets was $36 billion.