Government debt and deficits: how US federal borrowing works

The deficit is how much more the federal government spends than it collects in a single year. The debt is the running total of all the borrowing it has done to cover past deficits, minus what it has repaid. One is a flow, the other a stock: every year's deficit adds to the debt, much as a monthly overspend adds to a credit-card balance.

Both numbers are enormous, which makes them easy to quote and hard to interpret. On September 30, 2026, the end of fiscal year 2026, total public debt outstanding was $40.17 trillion, and the deficit for that year was $1.99 trillion. This guide explains how those figures are built, why the debt grows by more than the deficit, why economists compare both with GDP, how the debt ceiling works, and what the long-run data show. It also explains why investors care: every dollar of deficit is financed by selling Treasury securities into the bond market.

Deficit versus debt

The federal government's fiscal year runs from October 1 to September 30 and is named for the calendar year in which it ends, so fiscal 2026 ran from October 1, 2025 to September 30, 2026. (Before 1977 it ended on June 30, which is why older rows in the Treasury data are dated June 30.)

To pay for a deficit, the Treasury sells bills, notes and bonds (Treasury bills, notes and bonds: the US government’s debt menu) at regular auctions (Treasury auctions: how the US sells its debt and how to read results). The debt is what is still outstanding from all those sales, plus the securities issued to government trust funds.

The two kinds of debt

Treasury's daily Debt to the Penny dataset splits the total in two:

• Debt held by the public: securities owned by anyone outside the federal government, including individuals, pension funds, banks, mutual funds, foreign investors and the Federal Reserve.
• Intragovernmental holdings: debt one part of the government owes another, chiefly trust funds that invest their surplus revenue in special Treasury securities. The Social Security trust funds are the largest holder.

Debt held by the public is what competes for savings in financial markets, so most economists focus on it. The headline "national debt" usually means the total.

Worked example: why the debt grew more than the deficit

Debt to the Penny gives these year-end totals:

Scaling by GDP

A $40 trillion debt means little without the size of the economy that supports it. Nominal GDP in the third quarter of 2026 was $33.01 trillion at an annual rate.

How to read the long-run picture

Total debt was about 40% of GDP in 1966 and drifted down to 30.6% in the third quarter of 1981, because nominal GDP grew faster than the debt in a decade of high inflation. It then rose through the 1980s and early 1990s, flattened as the budget moved to surplus in fiscal 1998–2001 (the fiscal 2000 surplus was $236 billion), and stood near 62% in 2007.

Two shocks did most of the rest. The 2008–2009 recession pushed the ratio from about 67% in Q3 2008 to 82% a year later and past 100% by the start of 2013. The 2020 pandemic year took it from 106.8% in Q1 2020 to 132.7% in Q2 2020, partly because debt jumped and partly because GDP itself collapsed that quarter. The ratio fell back as GDP recovered and has held between about 118% and 123% since 2024.

The deficit chart shows the same story in flows. Measured against nominal GDP for each fiscal year (our calculation), the deficit was about 1.1% in fiscal 2007, 9.8% in fiscal 2009, 2.4% in fiscal 2015, 14.7% in fiscal 2020 and 12.0% in fiscal 2021. From fiscal 2023 to fiscal 2026 it stayed between about 5.8% and 6.3% of GDP even though unemployment was low, which is unusual: in earlier decades deficits of that size appeared mainly during or after recessions.

What drives the debt ratio

The debt-to-GDP ratio rises when debt grows faster than nominal GDP. A handy approximation separates the two forces:

The debt ceiling

The debt limit, or debt ceiling, is a cap set by Congress on the total amount of debt the Treasury may have outstanding. It does not authorize new spending or set taxes; those decisions are made separately in budget and appropriations laws. The ceiling only governs whether the Treasury can borrow to pay for obligations Congress already created.

When debt reaches the limit, the Treasury cannot raise its outstanding debt further. It can use extraordinary measures, accounting steps such as temporarily suspending certain investments by government funds, to keep paying bills for a limited time. If Congress has not raised or suspended the limit before those measures run out, the Treasury would be unable to pay all of its obligations on time. Stand-offs over the ceiling tend to show up in markets as unusual yields on Treasury bills that mature around the projected date the measures are exhausted.

Pitfalls and limitations

• Total versus public debt. Headlines often quote total debt, which includes money the government owes itself. Debt held by the public is the market-relevant measure and runs about $7.7 trillion lower.
• Dollar levels mislead over time. A $1 trillion deficit meant far more in 2009, when nominal GDP was about $14.5 trillion, than in 2026, when it was over $32 trillion. Compare ratios.
• Fiscal year, not calendar year. Annual deficit figures refer to the year ending September 30. Calendar-year comparisons with GDP need adjusting.
• Cyclical swings. Deficits widen automatically in recessions as tax receipts fall and benefit payments rise. A large deficit in a downturn says less about long-run policy than the same deficit at full employment.
• No magic threshold. There is no proven debt-to-GDP level at which trouble begins; Japan's ratio has long been far higher than the US's. What matters is the cost of financing the debt relative to growth, and investors' willingness to hold it.

Debt measures compared

How Finabase does it

Finabase does not show budget, deficit or debt data, and the charts on this page are ours, built from public Treasury and BEA series. Where the government's borrowing meets the market is the Treasury yield curve, and the app does show that:

• The Treasury page lists yields for maturities from 1 month to 30 years, the securities the Treasury sells to finance deficits.
• The 10-year Treasury yield has its own symbol page and chart, and the CBOE 10-year yield index is on the indices page as ^TNX.
• The futures list includes Treasury futures such as the 2-, 10- and 30-year contracts.

For the reasons behind any specific budget decision, the Economy news topic collects articles from the wider web.

Frequently asked questions

What is the difference between the deficit and the debt?

The deficit is the shortfall in a single fiscal year, outlays minus receipts; the debt is the total amount the government owes from all past borrowing. Fiscal 2026 had a $1.99 trillion deficit, and total debt at the end of that year was $40.17 trillion.

Who owns US government debt?

Of the $40.17 trillion total on September 30, 2026, $32.43 trillion was held by the public, meaning investors outside the federal government, including the Federal Reserve and foreign buyers, and $7.75 trillion was held by government trust funds and accounts.

When did the US last have a budget surplus?

Fiscal 2001 was the last surplus year in the Treasury/OMB data, ending four straight surpluses that began in fiscal 1998. The largest was $236 billion in fiscal 2000.

Does raising the debt ceiling increase spending?

No. The debt ceiling limits borrowing to pay for spending and tax laws Congress has already passed. Raising or suspending it lets the Treasury pay those existing obligations; it does not approve new ones.

Summary

The deficit is one year's gap between federal outlays and receipts; the debt is the accumulated borrowing, split between debt held by the public and debt the government owes its own trust funds. In fiscal 2026 the deficit was $1.99 trillion, about 6.2% of GDP, and total debt reached $40.17 trillion, about 122% of GDP. Ratios to GDP are the meaningful way to compare across decades: total debt fell to 30.6% of GDP in 1981, peaked at 132.7% in 2020, and has held near 120% since. The debt ceiling caps borrowing, not spending. For markets, the key link is financing: deficits are covered by selling Treasury securities, so their size, and the interest rate paid on them, feeds directly into the bond market.