Data Bytes: Federal Revenue, Spending & Debt

According to USA FACTS, in 2020, the federal government collected $3.5 trillion in revenue and spent $6.6 trillion.  Collections decreased by 3% while spending increased by 45%.  Together, 2020 federal spending and collections produced a $3.1 trillion deficit.        

A large share of the funds was spent on pandemic-stricken businesses, state unemployment insurance programs, and direct support to citizens.  

In 2020, federal revenue as a percentage of GDP was lower (16%) than the annual average of 18% obtained from 1980 to 2019.  Meanwhile, 2020 federal spending skyrocketed, growing by 45% YoY.  This more than doubled the 2009 increase that followed the Great Recession.  Notice, the gap in spending and revenue delivered an unprecedented annual deficit of over $3 trillion!

Predictably, total debt grew markedly in 2020.  The numbers are staggering and represent a genuine obstacle to President Biden’s ambitious agenda.  The Democrats hope significant economic growth in the next several years will ease debt anxieties.  However, Republicans are concerned the debt numbers will lead to increased corporate and wealth taxes.   

According to St. Louis Federal Reserve data, since 2008 federal debt as a percent of GDP has been on the rise.  The 2008 Great Recession led to ratios in the 80s in 2009.  And the ratio kept climbing – 90s in 2012 and 100 in 2014.   By 2019 Q4, the ratio reached 106.6%!  Pandemic spending pushed the ratios still higher – climbing to 129.1% Q4 in 2020.         

Many economists believe a 100% ratio is too high.  However, Biden’s economists are quick to point out the cost of maintaining debt.  Right now, that cost is extraordinarily low – thanks to historically low interests rates.  

Multiply the debt/GDP series by the 10-year Treasury rate – a proxy for the cost of debt (see graph below), and the picture brightens considerably – debt has never been cheaper.  From this vantage point, Biden likely thinks he has significant freedom to spend.  After all, at present, Biden enjoys a cooperative federal reserve and very modest inflation.