U.S. Budget Deficit

How bad is the U.S. budget deficit?

It’s bad — but it’s been worse. The federal government quite often spends more than it collects in taxes: the U.S. has run a budget deficit in all but six years since 1940, according to the Congressional Budget Office.

To measure the deficit, economists compare it to the gross domestic product (GDP). President Obama’s 2009 budget calls for a deficit of $1.75 trillion, which would represent 12.3 percent of GDP, the highest percentage since World War II.

The real problem is that deficits add to the national debt, or the total amount our government owes. Interest and principal payments on that debt consume money that could otherwise be used to fund programs or cut your taxes. The total national debt today stands at almost $10.9 trillion, just over two-thirds of GDP.

Will the weight of that debt cripple the economy and markets? It’s possible but far from certain. In 1948 the national debt reached almost 100 percent of GDP — and stocks and the economy surged over the next decade.