it is likely to remain near historically high levels. But the debt, which was just over 40 percent of the gross domestic product (GDP) at the end of 2008 and approaching 55 percent just 1 year later, will continue to grow; see Box 1-2 on the debt and the deficit.
Using information as of June 2009 (Congressional Budget Office, 2009e) and projecting the likely effects of current policies, the long-term budget outlook if policies are not changed is bleak:
By 2020, current policies would raise the federal debt to nearly 80 percent of GDP; see Figure 1-1, which also shows trends in spending and revenue from 1965 to the present.
In about 30 years, if new revenues are not raised, and the three big retirement and health programs are not modified, those programs alone will consume all available federal revenues. Even sooner, their growth will intensify pressure to cut the portion of federal spending that is subject to annual appropriations, an array of programs that includes most of the core functions of government and many services and investments generally considered vital.
The Deficit and the Debt
The “headline” federal budget deficit (or, in some years, surplus), is the difference in a given year between what the government spends and what it takes in (revenues). The deficit is mostly a measure of the net cash flows to and from the U.S. Department of the Treasury. The deficit is financed by borrowing from the public (individuals, governments, and investors here and in other countries). The deficit was $459 billion for fiscal 2008 (the year ending September 30, 2008) and $1.4 trillion in fiscal 2009.
The debt is the cumulative amount the U.S. government owes. In most years, the annual deficit is a rough measure of the change that year in the federal debt. However, in fiscal 2008 and 2009 the federal government also borrowed to finance transactions related to the failure of major financial institutions. The publicly held portion of federal debt is that held by persons or organizations (foreign or domestic) outside the federal government. It excludes federal debt held inside the government, much of it in balances of the Social Security and Medicare trust funds dedicated to payment of future benefits. (The combined total of debt held by the public and held in government accounts is sometimes referred to as the gross federal debt.) Debt held by the public reached $5.8 trillion in fiscal 2008 and rose to about $7.5 trillion a year later, about $25,000 per person. A substantial fraction of the outstanding public debt matures each year and must be replaced by new borrowings at then-current interest rates.