US government debt

The amount of US government debt is an ever increasing number. The only time it was reported as zero was in 1835. However debt can be dealt with if the GDP is high enough meaning a strong economy and thus good tax income. Below you can see a comparison of the US government debt and the GDP from 1920 until today. Today the debt stands at 12 trillion $, and the projected debt for end of 2010 is nearly 14 trn. The US government debt is mainly composed of treasury notes, bills and government account series. The latter are hold by government trust funds, revolving funds, and special funds. Treasury bills and notes are hold by individuals, corporations, local or foreign governments.

The US gross domestic product, which describes the total economic output of a country, it is the value of all products or services created in a country per year. Of course these belong to companies or individuals, but the government does profit from economic output by collecting taxes. Below you see a chart of the GDP and the US government debt, you see its taking off since the 70s, and the debt is coming closer to the GDP.

Amount of US government dept compared to GDP

In the next graphic you can see the percentage of debt compared to GDP. This allows us to see that the first 'step' towards higher debt occured in the time of the recession around 1930, and the next huge step came through WW2. Following this, the GDP grew stronger then the debt and the ratio sinks through the 50s until the 70s back to prewar level. Starting with the 80s the ratio increases again and since the financial crisis of 2008 the ratio has been increasing sharply again.

US Debt in realtion to GDP

But the government does not profit directly from the GDP, only through tax income from individuals or companies. How much does the government get from the GDP? We can see it in the next graphic:

US tax income in relation to GDP

Since the 1940s, the tax income in relation to the GDP has been fluctuating between 15 and 20%. At the moment it is clearly on the lower side. Now we know the GDP, and the percentage of GDP where the government gets income from. How does the annual tax income compare to the us government debt?

us government debt and tax income

You see the tax income has been increasing together with the government debt, however it lowered in the recent years due to the reduction in GDP compared to debt, and the low income of the government compared to GDP. So the difference between the us government debt and the tax income looks rather frighting, as in total numbers the gap is widening, but you will see that in relation it is not that extreme.

example graphic

Take a look at the graphic above, where we have one function y=x², and one which is always 20% of that value. You see that the absolute difference increases, but the ratio between the two functions is always 5:1. We look at the ratio of tax income vs. us government debt in the next graphic, which can also be described as years that it takes to pay back the us government debt using the total tax income (it is of course unrealistic that the total income would be spended for paying back).

How many years it takes to pay back the total us government debt

We see that the debt to income ratio has been very high in 30s, meaning high dept and low income, it was very good in the 70s. And since 2007 it has sharply increased again. The record level in 30s was due to the great depression, and was even bigger then that of WW2 times.

Sources: US department of treasury, congressional budget office