FACT SHEET: Are Deficits in Decline?

Last month, the federal government ran a surplus of $119 billion, the first monthly surplus since September 2019. The Fiscal Year 2022 deficit is slated to decline dramatically relative to 2021, and debt-to-GDP is likely to fall by the end of the fiscal year as well. 

However, January’s surplus was largely the result of timing shifts and one-time events. Moreover, while deficits and debt-to-GDP are likely to fall in the near term due to waning COVID relief and rapid inflation, debt remains at a near-record level, and both are on course to grow rapidly in the near future. 

Some helpful context:

  1. Deficits will fall as temporary COVID relief ends, but debt will continue to grow 
    • Annual deficits averaged nearly $3 trillion per year in 2020 and 2021, twice the previous record
    • More than $2 trillion per year of this borrowing was from temporary COVID relief, and CBO projects deficits will return to $1.15 trillion in 2022 as this relief expires
    • While deficits will fall, the national debt will continue to rise by well over $1 trillion this year and nearly $13 trillion over the next decade
  2. January’s $119 billion surplus was largely a mirage 
    • January is often a surplus month, as taxpayers pay quarterly estimated tax payments
    • Excluding timing shifts and one-time payments, the January surplus was just $14 billion, in line with the average over the decade before the COVID pandemic began
    • $81 billion of the official surplus was due to a one-time spectrum auction, while $24 billion was due to timing of payments that were scheduled to occur on a weekend or holiday
  3. High inflation eroded current debt but not long-term fiscal challenges 
    • High inflation reduced the value of outstanding debt – debt-to-GDP fell from 104 percent of GDP at the end of calendar year 2020 to 101 percent at the end of 2021
    • High inflation also increases future spending on programs like Social Security and interest on the debt – a one-point increase in annual inflation will increase debt by $1.7 trillion by 2031
    • High inflation will also lead the Federal Reserve to react more aggressively – a one-point increase in projected interest rates will increase debt by $2.1 trillion by 2031
    • Debt is expected to remain far above its historical average of 46 percent and will reach a new record as a result of population aging, rising health care costs, and rising interest rates