When a president takes office, they inherit the previous administration's federal budget and budget deficit, which stands for their first year. This is because the federal fiscal year runs from Oct. 1 to Sep. 30, making it impossible for the incoming president to influence whether or not the budget has a deficit from January, when they take office, through the end of the fiscal year.
Although almost every U.S. president in the past half-century has run a record budget deficit at one time or another, the largest budget deficits in U.S. history were run by former President Donald Trump and his two immediate predecessors.
However, under the administration of Trump's successor, President Joe Biden, the deficit has gone down, even though his administration has had to deal with expenses connected to the COVID-19 pandemic.
During the first half of the 20th century, the largest budget deficits were seen during the two world wars, and, relative to the size of the economy, the largest budget deficits in history were seen during World War II.
While the United States has run a budget deficit nearly every year since 1961, the deficits began to balloon during the 1970s and 1980s.
President Ronald Reagan took office in 1981, vowing to limit the size of government. Still, during his eight years in the White House, the nation's deficit roughly doubled and topped $200 billion several times. Reagan's successor, George H.W. Bush, also presided over a record-breaking deficit of $290 billion in 1992.
Under pressure from Republicans in Congress, President Bill Clinton, a Democrat, agreed to consistently cut the deficit and eventually oversaw the first budget surplus in decades.
The surplus stood at $236 billion in 2000, Clinton's final year in office. The $128 billion surplus recorded in 2001 was the last time a surplus had been seen this century.
When he took office in 2001, President George W. Bush cited the Clinton surplus as evidence that taxes were too high. He pushed through significant tax cuts and oversaw an increase in spending, and the combination again drove the U.S. budget into the red.
The deficit reached a record $458 billion in 2008, Bush's last year in office, and would triple the following year as the Bush and Obama administrations faced the Global Financial Crisis.
When discussing presidents and budget deficits, it's essential to keep some things in mind. First, Congress must approve all spending while a president proposes an annual budget. The president's power over the budget is never absolute. It can be severely limited if the opposition party holds a majority in either the House of Representatives or the Senate or if they hold the majority in both.
Another thing to know is that "discretionary" spending accounts for only about one-third of the typical U.S. budget. The majority is "mandatory" spending that is dictated by law. The most significant sources of mandatory spending are Medicare and Social Security.
In addition, the federal fiscal year runs from Oct. 1 to Sept. 30. This means that during a new president's first year in office, the budget that is in place was passed during their predecessor's term. However, incoming administrations can request additional spending upon taking office.
The U.S. budget deficit exploded in fiscal year 2009, ultimately reaching $1.4 trillion under President George Bush and the incoming Obama administrations struggled to contain the economic fallout from the financial crisis. Most of that deficit was created on Bush's watch, but Obama and the Democratic-controlled Congress added hundreds of billions of dollars to it in early 2009.
The deficit would remain above $1 trillion through the 2012 fiscal year but would be slashed to as low as $440 billion in the later years of Obama's presidency.
Relative to the size of the nation's economy, the biggest U.S. deficits in history were seen during World War II.
President Trump continued the trend of pushing the deficit higher as he sought massive tax cuts and increased defense spending. His first budget, for the 2018 fiscal year, recorded a deficit of $779 billion.
Under Trump, the deficit reached $984 billion in 2019 and hit more than $1 trillion in 2020, and that was before Congress passed a $2 trillion stimulus package to fight the economic fallout from the coronavirus pandemic.
One of Joe Biden's campaign promises was to reduce the federal deficit, and there's been progress on the account. The Congressional Budget Office (CBO) estimates that the federal budget deficit was $475 billion in the first five months of fiscal year 2022, which represented an amount lower than those for the years 2021 and 2020.
"It is less than half the shortfall recorded for the same months of fiscal year 2021 ($1.047 billion) and three-quarters of the deficit recorded in 2020 ($624 billion), just before the start of the coronavirus pandemic," noted the CBO. The turnaround is due to more robust revenues and fewer expenses—from October 2021 through February 2022, revenues were $371 billion (or 26%) higher, and outlays were $201 billion (or 8 percent) lower than they were during the same period a year ago," CBO estimates.
Still, the federal budget deficit stands at an estimated $900 billion.
A budget deficit occurs when expenses exceed revenue and indicate the financial health of a country. The government generally uses the term budget deficit when referring to spending rather than businesses or individuals. Accrued deficits form national debt.
A budget surplus occurs when income exceeds expenditures. The term often refers to a government's financial state, as individuals have "savings" rather than a "budget surplus." A surplus is an indication that a government's finances are being effectively managed.
Formers presidents George Bush, Barack Obama, and Donald Trump all ran the largest U.S. deficits in history.
When President Regan left office after serving two terms, the deficit was 5% of the economy and interest payments on the debt were $169 billion in 1989.