U.S. debt from 1940 to 2011. Red lines indicate the debt held by the public (net public debt) and black lines indicate the total public debt outstanding (gross public debt), the difference being that the gross debt includes that held by the federal government itself. The second panel shows the two debt figures as a percentage of U.S. GDP (dollar value of U.S. economic production for that year). The top panel is deflated so every year is in 2010 dollars.

The United States public debt is the money borrowed by the federal government of the United States at any one time through the issue of securities by the Treasury and other federal government agencies. The US national public debt consists of two components:^[1]

• Debt held by the public includes Treasury securities held by investors outside the federal government, including that held by individuals, corporations, the Federal Reserve System and foreign, state and local governments.
• Debt held by government accounts or intragovernmental debt mainly includes non-marketable Treasury securities held in accounts administered by the federal government that are owed to program beneficiaries, such as the Social Security Trust Fund. Debt held by government accounts represents the cumulative surpluses, including interest earnings, of these accounts that have been invested in Treasury securities.

Public debt increases or decreases as a result of the annual unified budget deficit or surplus.^[2] The federal government budget deficit or surplus is the cash difference between government receipts and spending, ignoring intra-governmental transfers. However, there is certain spending (supplemental appropriations) that add to the debt but are excluded from the deficit.

Federal debt as a share of the nation's income has varied. Historically, the nation has run up deficits during wars and recessions, but then debt has subsequently declined. For example, debt as a share of the economy peaked just after World War II (112.7% of GDP in 1945), but then fell. In recent years, however, sharp increases in deficits and the resulting increases in debt have led to heightened concern about the long-term sustainability of the federal government's fiscal policies.^[3]

As of May 2012, debt held by the public was $10.95 trillion or approximately 71% GDP, while the intragovernmental debt was $4.76 trillion or approximately 29% GDP. These two amounts combined are defined as total public debt outstanding and equal $15.7 trillion, roughly 102% of GDP.^[4][5] The public debt has increased by over $500 billion each year since fiscal year (FY) 2003, with increases of $1 trillion in FY2008, $1.9 trillion in FY2009, $1.7 trillion in FY2010, and $1.2 trillion in FY2011.^[6][7] As of February 2012, $5.1 trillion or approximately 50% of the debt held by the public was owned by foreign investors, the largest of which were China and Japan at just over $1 trillion each.^[8] As of April 2012, nominal GDP of the United States was $15.46 trillion.^[9]

In the United States, there continues to be disagreement between Democrats and Republicans regarding the United States debt. On August 2, 2011, President Barack Obama signed into law the Budget Control Act of 2011, averting a possible financial default. During June 2011, the Congressional Budget Office called for "...large and rapid policy changes to put the nation on a sustainable fiscal course."^[10]

History[link]

U.S. federal debt held by the public as a percentage of GDP, from 1790 to 2009

Time series of U.S. federal debt overlaid with partisan affiliation of the White House and the Congress.

Federal debt as a share of the nation's income has varied. Historically, the nation has run up deficits during wars and recessions, but then debt has subsequently declined. For example, debt as a share of the economy peaked just after World War II (112.7% of GDP in 1945), but then fell. In recent years, however, sharp increases in deficits and the resulting increases in debt have led to heightened concern about the long-term sustainability of the federal government's fiscal policies (62% of GDP in 2010).^[11]

The United States has had a public debt since its founding in 1791. Debts incurred during the American Revolutionary War and under the Articles of Confederation amounted to $75,463,476.52 on January 1, 1791. From 1796 to 1811 there were 14 budget surpluses and 2 deficits. Another sharp increase in the debt that occurred was a result of the Civil War. The debt was just $65 million in 1860, but passed $1 billion in 1863 and reached $2.7 billion by the end of the war. During the following 47 years, there were 36 surpluses and 11 deficits. During this period 55% of the national debt was paid off. The next period of major increase in the national debt took place during World War I, reaching $25.5 billion at its conclusion. It was followed by 11 consecutive surpluses and saw the debt reduced by 36%.

Social programs enacted during the Great Depression and the buildup and involvement in World War II during the F.D. Roosevelt and Truman presidencies in the 1930s and 1940s caused the largest increase — a sixteenfold increase in the gross public debt from $16 billion in 1930 to $260 billion in 1950. When Roosevelt took office in 1933, the national debt was almost $20 billion; a sum equal to 20 percent of the U.S. gross domestic product (GDP). During its first term, the Roosevelt administration ran large annual deficits between 2 and 5 percent of GDP. By 1936, the national debt had increased to $33.7 billion or approximately 43 percent of GDP.^[12] US public debt relative to GDP rose to over 110% to pay for WWII.^[13]

The debt burden fell rapidly after the end of World War II, as the US and the rest of the world experienced a post-war economic expansion. The outstanding debt held steady for the next 25 years, going up to $283 billion in 1970 from $242 billion in 1946. Increasing GDP meant that the debt-GDP ratio fell during that time.^[14]

After reaching its post-WWII low in 1974, debt relative to GDP rose rapidly in the 1980s. President Ronald Reagan's economic policies lowered tax rates and increased military spending, while congressional Democrats blocked attempts to reverse social welfare spending.^[14][15] As a result, public debt as a share of GDP increased to 41% by the end of the 1980s.^[16]

Debt held by the public continued to rise during the presidency of George H. W. Bush. It reached nearly 50% of GDP during Bill Clinton's first presidential term. However, it fell to 39% of GDP by the end of Clinton's presidency due in part to decreased military spending after the Cold War, 1990, 1993 and 1997 budgets that increased taxes, and increased tax revenue resulting from the Dot-com bubble.^[17][18][19] The budget controls instituted in the 1990s successfully restrained fiscal action by the Congress and the President and together with economic growth contributed to the budget surpluses that materialized by the end of the decade. These surpluses led to a decline in the debt held by the public, and from fiscal years 1998 through 2001, the debt-to-GDP measure declined from about 43 percent to about 33 percent.^[20]

Debt relative to GDP rose due to recessions and policy decisions in the early 21st century. From 2000 to 2008 debt held by the public rose from 35% to 40%, and to 62% by the end of fiscal year 2010.^[21] During the presidency of George W. Bush, the gross public debt increased from $5.7 trillion in January 2001 to $10.7 trillion by December 2008,^[22] due in part to the Bush tax cuts and increased military spending caused by the wars in the Middle East.^[23] In the aftermath of the Global Financial Crisis, the debt increased from $10.7 trillion in 2008 to $15.5 trillion by February 2012 under the presidency of Barack Obama.^[24]

The Congressional Budget Office (CBO) projected in 2001 that the federal government would erase its debt in 2006 and be $2.3 trillion in the black by 2011. The difference between projected and actual debt can be largely attributed to:^[25][26][27]

• $3.6 Trillion – Economic changes (including lower than expected tax revenues due to recession)
• $3.0 Trillion – Bush Tax Cuts
• $1.4 Trillion – War in Afghanistan and Iraq
• $1.4 Trillion – Stimulus spending in response to the 2008 Financial Crisis

Valuation and measurement[link]

Public and government accounts[link]

Detailed breakdown of government holders of treasury debt and debt instruments used of the public portion.

The total or gross national debt is the sum of the "debt held by the public" and "intragovernmental" debt. As of March 2012, the "debt held by the public" was $10.85 trillion and the "intragovernmental debt" was $4.74 trillion, for a total of $15.6 trillion.^[28]

The national debt can also be classified into marketable or non-marketable securities. As of March 2012, total marketable securities were $10.34 trillion while the non-marketable securities were $5.24 trillion.^[29] Most of the marketable securities are Treasury notes, bills, and bonds held by investors and governments globally. The non-marketable securities are mainly the "government account series" owed to certain government trust funds such as the Social Security Trust Fund, which represented $2.7 trillion in 2011.^[30] The non-marketable securities represent amounts owed to program beneficiaries. For example, in the case of the Social Security Trust Fund, the payroll taxes dedicated to Social Security were credited to the Trust Fund upon receipt, but spent for other purposes. If the government continues to run deficits in other parts of the budget, the government will have to issue debt held by the public to fund the Social Security Trust Fund, in effect exchanging one type of debt for the other.^[31] Other large intragovernmental holders include the Federal Housing Administration, the Federal Savings and Loan Corporation's Resolution Fund and the Federal Hospital Insurance Trust Fund (Medicare).

Accounting treatment[link]

Only debt held by the public is reported as a liability on the consolidated financial statements of the United States government. Debt held by government accounts is an asset to those accounts but a liability to the Treasury; they offset each other in the consolidated financial statements.^[32]

The deficit is presented on a cash rather than an accruals basis, although the accrual basis may provide more information on the longer-term implications of the government's annual operations.^[33]

Fannie Mae and Freddie Mac obligations excluded[link]

Although not included in the debt figures reported by the government, the U.S. government has moved to more explicitly support the soundness of obligations of Freddie Mac and Fannie Mae, starting in July 2008 via the Housing and Economic Recovery Act of 2008, and the September 7, 2008 Federal Housing Finance Agency (FHFA) conservatorship of both government sponsored enterprises (GSEs). The on- or off-balance sheet obligations of those two independent GSEs was just over $5 trillion at the time the conservatorship was put in place, consisting mainly of mortgage payment guarantees.^[34] The extent to which the government will be required to pay these obligations depends on a variety of economic and housing market factors. The federal government provided over $110 billion to Fannie and Freddie by 2010.^[35]

Guaranteed obligations excluded[link]

U.S. federal government guarantees are not included in the public debt total, until such time as there is a call on the guarantees. For example, the U.S. federal government in late-2008 guaranteed large amounts of obligations of mutual funds, banks, and corporations under several programs designed to deal with the problems arising from the late-2000s financial crisis. The funding of direct investments made in response to the crisis, such as those made under the Troubled Assets Relief Program, are included in the debt.

Unfunded obligations excluded[link]

The U.S. government is obligated under current law to mandatory payments for programs such as Medicare, Medicaid and Social Security. The Government Accountability Office (GAO) projects that payouts for these programs will significantly exceed tax revenues over the next 75 years. The Medicare Part A (hospital insurance) payouts already exceed program tax revenues, and social security payouts exceeded payroll taxes in fiscal 2010. These deficits require funding from other tax sources or borrowing.^[36]

The present value of these deficits or unfunded obligations is an estimated $45.8 trillion. This is the amount that would have to be set aside during 2009 so that the principal and interest would pay for the unfunded obligations through 2084. Approximately $7.7 trillion relates to Social Security, while $38.2 trillion relates to Medicare and Medicaid. In other words, health care programs will require nearly five times the level of funding than Social Security. Adding this to the national debt and other federal obligations would bring total obligations to nearly $62 trillion.^[37] However, these unfunded obligations are not counted in the national debt.

The Congressional Budget Office (CBO) has indicated that: "Future growth in spending per beneficiary for Medicare and Medicaid — the federal government’s major health care programs — will be the most important determinant of long-term trends in federal spending. Changing those programs in ways that reduce the growth of costs — which will be difficult, in part because of the complexity of health policy choices — is ultimately the nation’s central long-term challenge in setting federal fiscal policy."^[38]

Measuring debt relative to gross domestic product[link]

2010 Budget: Total Debt $ and % to GDP 2000–2010

GDP is a measure of the total size and output of the economy. One measure of the debt burden is its size relative to GDP. In the 2007 fiscal year, U.S. federal debt held by the public was approximately $5 trillion (36.8 percent of GDP) and total debt was $9 trillion (65.5 percent of GDP).^[39] Debt held by the public represents money owed to those holding government securities such as Treasury bills and bonds. Total debt includes intra-governmental debt, which includes amounts owed to the Social Security Trust Funds (about $2.2 trillion in FY 2007)^[40] and Civil Service Retirement Funds. By August 2008, the total debt was $9.6 trillion.^[41]

Based on the 2010 U.S. budget, total national debt will nearly double in dollar terms between 2008 and 2015 and will grow to nearly 100% of GDP, versus a level of approximately 80% in early 2009.^[42] Multiple government sources including the current and previous presidents, the GAO, Treasury Department, and CBO have said the U.S. is on an unsustainable fiscal path.^[43] However, ahead of predictions, total national debt reached 100% by the third quarter of 2011.^[44] If counted using the total public debt outstanding over the annual GDP in chained 2005 dollars, the ratio reached 115% on Feb. 2012.^[45]

As the debt ratio increases, the exchange value of the dollar may fall. Paying back debt with cheaper currency could cause investors (including other governments) to demand higher interest rates if they anticipate further dollar depreciation. Paying higher interest rates could slow domestic U.S. growth.

Higher debt increases interest payments on the debt, which already exceed $430 billion annually as discussed below, or about 15 cents of every tax dollar for 2008.^[46] According to the CIA Factbook, nine countries have debt to GDP ratios over 100% for 2010, the largest of which is Japan at approximately 197.5%.^[47]

Further, a high public debt to GDP ratio may also slow economic growth. Economists Carmen Reinhart and Kenneth Rogoff calculated that countries with public debt above 90 percent of GDP grow by an average of 1.3 percentage points per year slower than less indebted countries. The public debt-to-GDP ratio in March 2010 is about 60 percent of GDP; CBO projects it will reach 90 percent around 2020 under policies in place in 2010. If growth slows, all of the economic challenges the U.S. faces will worsen.^[48]

Calculating the annual change in debt[link]

Comparison of deficits to change in debt in 2008

The annual change in debt is not equal to the "total deficit" typically reported in the media. Social Security payroll taxes and benefit payments, along with the net balance of the U.S. Postal Service, are considered "off-budget", while most other expenditure and receipt categories are considered "on-budget." The total federal deficit is the sum of the on-budget deficit (or surplus) and the off-budget deficit (or surplus). Since FY1960, the federal government has run on-budget deficits except for FY1999 and FY2000, and total federal deficits except in FY1969 and FY1998–FY2001.^[49]

In large part because of Social Security surpluses, the total deficit is smaller than the on-budget deficit. The surplus of Social Security payroll taxes over benefit payments is spent by the government for other purposes. However, the government credits the Social Security Trust fund for the surplus amount, adding to the "intragovernmental debt." The total federal debt is divided into "intragovernmental debt" and "debt held by the public." In other words, spending the "off budget" Social Security surplus adds to the total national debt (by increasing the intragovernmental debt) while the surplus reduces the "total" deficit reported in the media.

Certain spending called "supplemental appropriations" is outside the budget process entirely but adds to the national debt. Funding for the Iraq and Afghanistan wars was accounted for this way prior to the Obama administration. Certain stimulus measures and earmarks are also outside the budget process.

For example, in FY2008 an off-budget surplus of $183 billion reduced the on-budget deficit of $642 billion, resulting in a total federal deficit of $459 billion. Media often reported the latter figure. The national debt increased by $1,017 billion between the end of FY2007 and the end of FY2008.^[50] The federal government publishes the total debt owed (public and intragovernmental holdings) at the end of each fiscal year^[51] and since FY1957 the amount of debt held by the federal government has increased each year.

Debt ceiling[link]

US debt ceiling at the end of each year from 1981 to 2010.

Under Article I Section 8 of the United States Constitution, Congress has the sole power to borrow money on the credit of the United States. From the founding of the United States until 1917 Congress directly authorized each individual debt issuance separately. In order to provide more flexibility to finance the United States' involvement in World War I, Congress modified the method by which it authorizes debt in the Second Liberty Bond Act of 1917.^[52] Under this act Congress established an aggregate limit, or "ceiling," on the total amount of bonds that could be issued.

The current debt ceiling, in which an aggregate limit is applied to nearly all federal debt, was substantially established by Public Debt Acts^[53][54] passed in 1939 and 1941. The Treasury is authorized to issue debt needed to fund government operations (as authorized by each federal budget) up to a stated debt ceiling, with some small exceptions.

The process of setting the debt ceiling is separate and distinct from the regular process of financing government operations, and raising the debt ceiling does not have any direct impact on the budget deficit. The US government proposes a federal budget every year, which must be approved by Congress. This budget details projected tax collections and outlays and, if there is a budget deficit, the amount of borrowing the government would have to do in that fiscal year. A vote to increase the debt ceiling is, therefore, usually treated as a formality, needed to continue spending that has already been approved previously by the Congress and the President. The Government Accountability Office (GAO) explains: "The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred."^[55] The apparent redundancy of the debt ceiling has led to suggestions that it should be abolished altogether.^[56][57]

Since 1979, the House of Representatives passed a rule to automatically raise the debt ceiling when passing a budget, without the need for a separate vote on the debt ceiling, except when the House votes to waive or repeal this rule. The exception to the rule was invoked in 1995, which resulted in two government shutdowns.^[58]

When the debt ceiling is reached, Treasury can declare a debt issuance suspension period and utilize "extraordinary measures" to acquire funds to meet federal obligations but which do not require the issue of new debt.^[59] Treasury first used these measures on December 16, 2009, to remain within the debt ceiling, and avoid a government shutdown,^[60] and also used it during the debt-ceiling crisis of 2011. However, there are limits to how much can be raised by these measures.

The debt ceiling was increased on February 12, 2010, to $14.294 trillion.^[61][62][63] On April 15, 2011, Congress finally passed the 2011 United States federal budget, authorizing federal government spending for the remainder of the 2011 fiscal year, which ends on September 30, 2011, with a deficit of $1.48 trillion,^{[citation needed]} without voting to increase the debt ceiling. The two Houses of Congress were unable to agree on a revision of the debt ceiling in mid-2011, resulting in the United States debt-ceiling crisis. The impasse was resolved with the passing on August 2, 2011, the deadline for a default by the US on its debt, of the Budget Control Act of 2011, which immediately increased the debt ceiling to $14.694 trillion, required a vote on a Balanced Budget Amendment, and established several complex mechanisms to further increase the debt ceiling and reduce federal spending.