The government’s revenues come principally from individual income taxes and payroll taxes (Social Security and Medicare tax deductions). The spending (outlays) goes to pay for (in order of size) making transfer payments, maintaining the military, and running the government. Here is a graph of the revenues and outlays of the U.S. Federal Government for 2019:
Figure 16.6. Federal Spending and Revenue is in the public domain.
Similar to your household budget, if the government spends more than it collects in revenue, it has to borrow money to finance the deficit. In the case of the U.S., it does this by issuing more Treasury Bonds. Since the definition of the national debt is the amount of Treasury Bonds outstanding, financing the annual deficit each year with additional Treasury Bonds increases the national debt.
The graph below shows the revenues and outlays of the U.S. Government through the year 2017. The red part of each year’s bar graph represents the annual deficit. Because of the scale of the graph the red section may not look large, but in the later years, the deficit is $1 trillion. In 2019, the federal budget deficit was $984 billion. Moreover, due to the $3 trillion CARES Act, the federal budget deficit in 2020 is projected to be way over $2 trillion. Here is the history of Federal revenue and spending through 2017:
Figure 16.7. Revenue and Spending of the Federal Government by Wikideas1 is used under a CC BY-SA 4.0 License.
In July 2020, the Congressional Budget Office (CBO) projected the federal revenue and spending through 2030. The difference between the two is the annual deficit, and this deficit must be financed by issuing additional Treasury Bonds. Note that the CBO projections show trillions of dollars in deficits each year that must be borrowed.
Figure 16.8. Federal Receipts and Outlays by Fred Rowland is used under a CC BY-NC 4.0 License. Source: Office of Management and Budget data (12/2020).
Every time the government runs a deficit, the Treasury Department must issue more Treasury Bonds to finance it. Since the National Debt of any country is defined by the outstanding amount of Treasury Bonds, the National Debt increases. Note that the government generally highlights only the Treasury Bonds held by the public and not those held by the Federal Reserve Bank or by the Social Security Administration. As of the end of 2019, the U.S. National Debt was $23.2 trillion and is continuing to balloon. The graph below shows Total U.S. Debt Held by the Public.
Figure 16.9. U.S. Department of the Treasury. Fiscal Service, Federal Debt: Total Public Debt [GFDEBTN], retrieved from FRED, Federal Reserve Bank of St. Louis; October 1, 2021.
Additionally, the Treasury Department continues to borrow heavily to pay for the economic stimulus programs created by the $2.2 trillion CARES Act, enacted in March 2020, as counter-cyclical fiscal policy to alleviate the Pandemic Recession. Since there was also Pandemic Fiscal Policy legislation immediately prior to the CARES Act, Congress has committed to approximately $3.6 trillion in additional discretionary fiscal spending in 2020. The graph below shows the monthly borrowings of the U.S. Treasury to finance its Fiscal deficit from the year 2010 to August 2021.
Figure 16.10. U.S. Department of the Treasury. Fiscal Service, Means of Financing: Borrowing from the Public [MTSMFBP133FMS], retrieved from FRED, Federal Reserve Bank of St. Louis; October 1, 2021.
The Treasury Department announced in August 2020 that it planned to borrow a total of $4.5 trillion in fiscal year 2020 to finance the deficit for that year. As reported by the Peter G. Peterson Foundation, through mid 2022, the various fiscal stimulus plans in both the Trump administration (2017 to 2020) and the Biden administration (2021 to present) cost the U.S. government (and U.S. taxpayers) $5.3 trillion.
Figure 16.11. Legislation Enacted to Combat the Coronavirus Pandemic by Peter G. Peterson Foundation has no known copyright restrictions.
The 2022 U.S. GDP is approximately $25 trillion in current dollars, and therefore this stimulus was over 25% of GDP, a historically unprecedented amount.
The stimulus has ballooned U.S. national debt to $ 31 trillion, or 124% of GDP, also a historically unprecedented amount. The national debt has grown every year, under both Republican and Democratic administrations.
Figure 16.12. U.S. Debt Rises Irrespective of Who is in the White House by Statistais used under a CC BY-ND 3.0 License.