Historical US Federal, State, and Local Government Surpluses and Deficits - Graph

There are two critical trends in public finances: the rapid expansion of government and persistent deficits.

Chart: Government Revenue Expenditure Surplus (Deficit)

Total federal, state and local government spending has quadrupled as a share of the nation's economy from 1929 to now from 10% to nearly 40%. Other than World War II and the period from 1992 through 2000, government's growth in its share of the economy has been remarkably persistent.

This blossoming has been a source of incessant and lively debate since the late 1800s. The graph clearly shows which arguments have prevailed historically.

"There are two critical trends: the rapid expansion of government and persistent deficits."

Deficits have been the rule since 1929 regardless of recession or prosperity, war or peace, Republican or Democratic control of policy.

When used in moderation, deficits can be beneficial. When used in excess, deficits are clearly dangerous. An interruption in credit could bring the economy to a stop.

While the graph above is a conventional presentation, it lacks two ingredients necessary for a stronger understanding of public finances. It does not count unfunded promises to pay retirement benefits to government employees and unfunded promises to pay Social Security and Medicare to ordinary citizens as government expenses. Estimates of deficits including these obligations add roughly 30% of GDP to current deficits.1 For perspective, note that business accounting does not allow this degree of discretion.

notes:

The chart is derived from data published by the US Department of Commerce, Bureau of Economic Analysis, National Income and Products Accounts, Tables 1.1.5, 3.1, 3.2, 3.3. See http://www.bea.gov/national/nipaweb/SelectTable.asp?Selected=N for the cited data. Projection of 2009 by MyGovSpending.com is based on Congressional Budget Office and data from other sources.

1 based on an August 24, 2006 article by Dennis Cauchon, USA Today entitled "What's The Real Federal Deficit?"