Treasury: 2021 Deficit Was $2.8 Trillion
The Treasury Department released its final Monthly Treasury Statement for Fiscal Year (FY) 2021, showing a $2.8 trillion deficit for the year and debt held by the public at nearly $22.3 trillion. The high deficit comes as little surprise since the COVID-19 public health and economic crisis caused revenue to fall and spending to rise over the past year. Treasury’s estimate is $231 billion lower than the $3.0 trillion deficit the Congressional Budget Office (CBO) projected in its July Budget and Economic Outlook and $360 billion below the record $3.1 trillion deficit in FY 2020.
Based on CBO’s fiscal year Gross Domestic Product (GDP) projection for 2021, debt ended the year at 99 percent of GDP – slightly below debt-to-GDP of 100 percent at the end of FY 2020.
At $2.8 trillion, the FY 2021 deficit is $360 billion below 2020’s record $3.1 trillion deficit, but nearly three-times the $984 billion deficit recorded in 2019. It’s 12.4 percent of projected GDP and is the second-largest nominal dollar deficit in history and the sixth-largest as a share of GDP – eclipsed only by four years of borrowing to fight World War II and one year to fight COVID-19. The FY 2021 deficit ended up $231 billion lower than the $3.0 trillion CBO projected in July, with about 90 percent of the difference due to higher revenue collections and the rest from lower spending.
Total spending for the year was $6.8 trillion, $266 billion more than the nearly $6.6 trillion spent in FY 2020 but substantially more than 2019’s $4.4 trillion. As a share of GDP, spending was 30.5 percent – the fifth-highest total in recorded history. Meanwhile, revenue totaled $4.0 trillion, $626 higher than the $3.4 trillion collected in FY 2020 and $583 higher than the nearly $3.5 trillion collected in 2019. As a share of GDP, revenue was 18.1 percent, 1.7 percentage points above FY 2020’s and FY 2019's 16.3 percent of GDP. Under current law, CBO expects revenue to remain above 18.0 percent of GDP for the next two fiscal years before falling below 18.0 percent for most remaining years in the ten-year budget window.
Higher spending is especially concentrated among safety net and health care programs, as well as programs established in COVID relief legislation (see our COVID Money Tracker for more about the COVID response).
Fiscal Year Totals
|Budget Area||FY 2020||FY 2021||% Change|
|Social Security||$1,096 billion||$1,135 billion||3.5%|
|Medicare||$776 billion||$696 billion||-10.3%|
|Medicaid||$458 billion||$521 billion||13.5%|
|Refundable Tax Credits||$415 billion||$778 billion||87.7%|
|Coronavirus Relief Fund||$149 billion||$243 billion||62.9%|
|Unemployment Benefits||$476 billion||$394 billion||-17.2%|
|Small Business Administration (mostly PPP)||$577 billion||$323 billion||-44.1%|
|Military||$690 billion||$718 billion||3.9%|
|Interest on the Debt||$345 billion||$352 billion||2.2%|
|Other||$1,569 billion||$1,658 billion||5.7%|
|Total Spending||$6.6 trillion||$6.8 trillion||4.1%|
|Income and Payroll Taxes||$2,919 billion||$3,358 billion||15.1%|
|Corporate Taxes||$212 billion||$372 billion||75.5%|
|Fed Remittances||$82 billion||$100 billion||22.2%|
|Other||$208 billion||$216 billion||3.9%|
|Total Revenue||$3.4 trillion||$4.0 trillion||18.3%|
|Deficit||-$3.1 trillion||-$2.8 trillion||-11.5%|
Sources: Congressional Budget Office, U.S. Department of Treasury, and CRFB calculations.
Numbers may not sum due to rounding.
Medicaid spending was up nearly 14 percent over 2020 due to higher enrollment and a temporary increase in matching funds to states while Medicare spending was down over 10 percent mostly because program expansions that provided accelerated payments to providers are no longer in effect. Unemployment spending totaled $396 billion, down from $476 billion last year, in part because the enhanced benefits expired in September (and many states chose to end federal unemployment benefits early) and in part because of an increase in employment. The refundable tax credits - including the $600 and $1,400 Economic Impact Payments (EIPs) issued earlier this year as well as expansions of the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), and Affordable Care Act (ACA) premium tax credits - cost $778 billion. In addition, Small Business Administration (SBA) spending (almost entirely representing the Paycheck Protection Program) and the Coronavirus Relief Fund for states totaled over $323 billion and $243 billion, respectively
A few areas of spending were less affected by the crisis or were affected in ways that reduced spending. Both Social Security and military spending grew by nearly 4 percent due to built-in growth from non-COVID factors. Meanwhile, interest spending increased by over 2 percent due to interest rates resuming their upward trend after falling to historic lows.
Revenue collections were up in FY 2021 compared to 2020, mostly due to the overall strength of the economy over the past year. Combined individual income and payroll taxes increased by 15.1 percent, reflecting higher total and wages and salaries – particularly amongst high-income workers who are subject to higher tax rates on their earnings. Corporate income taxes are up by 75.5 percent largely due to higher corporate profits this year. Similarly, other sources of revenue increased by 22.2 percent entirely due to higher Federal Reserve remittances from its balance sheet expansion. Other sources of revenue besides remittances from the Federal Reserve were up 3.9 percent.
The large FY 2021 deficit comes as no surprise and the heightened borrowing over the past year has been necessary to respond to the COVID-19 pandemic and economic crisis. However, it will contribute to high debt that will stay with us over the long-term. Similarly, lawmakers must focus on creating a long-term plan to reduce deficits.