Among the world’s major advanced economies, the US holds a distinction it probably doesn’t want to brag about: the largest primary budget deficit. The US came in at 7.6% of GDP in 2023, compared to a 4.6% average among other OECD member countries.
The numbers behind the gap
The primary deficit, which strips out interest costs to show how much the government is overspending on its actual operations, landed at 3.3% of GDP for FY2024. That was actually a modest improvement, down half a percentage point from FY2023.
The Congressional Budget Office projects this figure will average somewhere between 3.1% and 3.6% of GDP over the longer term. Translation: this isn’t a temporary blip caused by a recession or emergency spending. It’s the baseline.
Total federal budget deficit hit $1.8 trillion in fiscal year 2024, or 6.4% of GDP. Looking ahead to FY2026, the total federal budget deficit is expected to land between $1.8 trillion and $2.1 trillion, according to Treasury and CBO estimates.
Why the deficit stays stubbornly high
The usual suspects are driving the gap: mandatory entitlement programs like Social Security and Medicare, which grow automatically as the population ages, and interest payments on existing debt that keep compounding.
What makes the current situation unusual is that these deficits are persisting during a period of economic expansion. Revenue growth simply hasn’t kept pace with the structural spending obligations baked into the federal budget.
What this means for markets and investors
There’s also the question of sovereign creditworthiness. The US lost its pristine AAA rating from S&P back in 2011 and from Fitch in 2023.