Historical Overview

The federal government has carried debt throughout virtually all of U.S. history. As part of Alexander Hamilton's plan for strengthening the financial credit of the post-Constitution nation, the federal government assumed the debt incurred during the Revolutionary War and the period under the Articles of Confederation.

Since that time, federal debt as a share of the nation's income has varied. Historically, the U.S. government has run up deficits The amount by which the government’s spending exceeds its revenues for a given period, usually a fiscal year. during wars and recessions, which contribute to the debt. The government funds the difference between spending and revenue by incurring debt. However, the debt level usually declines after these events. For example, the federal budget deficit increased sharply from about 4 percent to about 30 percent of the economy from 1941 through 1943. As a result, federal debt increased and the ratio of debt held by the public to gross domestic product (GDP)A commonly used measure of national income, GDP is the value of the goods, services, and structures produced within the United States in a particular period, usually a year. GDP includes all market production and some nonmarket production, such as government spending to provide defense and education, and, where possible, values output at market prices. GDP captures output produced within the United States, without regard to the national origin of the producer. Similarly, GDP excludes the output of establishments of U.S. companies outside the United States. —a measure of the debt burden on the current economy—increased sharply until it reached its largest percentage of GDP of 106 percent in fiscal year 1946. It then took 17 years for the debt-to-GDP ratio to return to its 1941 level.

Debt held by the publicDebt held by the public is the value of all federal securities sold to the public, i.e., investors outside of the federal government. rose during the periods surrounding the Civil War, World War I, the Great Depression, and the most recent financial crisis and recession. In recent years, historically high and rising levels of debt as a percentage of GDP have led to heightened concern about the long-term sustainability of the federal government's fiscal policies.

Source: GAO analysis of data from the Congressional Budget Office’s (CBO) 2013 Long-Term Budget Outlook (September 2013, Supplemental Data), and Budget and Economic Outlook: 2017 to 2027 (January 2017, Supplemental Data).

Notes: For years 1797-1939, year refers to calendar year. For years 1940-2016, year refers to fiscal year. CBO notes they estimated gross domestic product (GDP) from several sources. Data from 1929 onward reflect revisions to the estimates of GDP that the Bureau of Economic Analysis released in July 2013.