History of The United States Public Debt - After World War II

After World War II

The debt burden fell rapidly after the end of World War II, as the US and the rest of the world experienced a post-war economic expansion. However, growth rates in the western countries began to slow in the mid-1960s. Beginning in the mid-1970s and afterwards, U.S. government debt began to increase faster than GDP. In 1974 Congressional Budget Act reformed budget process in order to allow Congress to challenge the president's budget more easily and as a consequence deficit became increasingly difficult to control. Debt held by the public as a share of GDP increased from its post-World War II low of 24.6% in 1974 to 26.2% in 1980.

From 1981 to 1989, nominal debt held by public nearly tripled. On the one hand, President Ronald Reagan increased military spending and lowered tax rates. (Reagan slashed the top income tax rate from 70% to 28%, although bills passed in 1982 and 1984 later partially reversed those tax cuts.) On the other hand, congressional Democrats blocked attempts to reverse spending on social programs. Because of the budget deficits that resulted, debt held by the public as a share of GDP increased from 26.2% in 1980 to 41% by the end of the 1980s.

Debt held by the public had risen to nearly 50% of GDP in the early 1990s, but fell to 39% of GDP by the end of the decade. The public debt burden during the presidency of Bill Clinton between 1993 and 2001, fell due in part to decreased militarily spending after Cold War, 1990, 1993 and 1997 budget deals, gridlock between White House and Congress, and increased tax revenue resulting from the Dot-com bubble. The budget controls instituted in the 1990s successfully restrained fiscal action by the Congress and the President and together with economic growth contributed to the budget surpluses that materialized by the end of the decade. These surpluses led to a decline in the debt held by the public, and from fiscal years 1998 through 2001, the debt-to-GDP measure declined from about 43 percent to about 33 percent.

Debt relative to GDP rose due to recessions and policy decisions in the early 21st century. From 2000 to 2008 debt held by the public rose from 35% to 40%, and to 62% by the end of fiscal year 2010. During the presidency of George W. Bush, the gross public debt increased from $5.7 trillion in January 2001 to $10.7 trillion by December 2008, due to decreasing tax rates and two unpaid wars. Federal spending under President George W. Bush remained at around 40% of GDP during his two terms in office. Public debt increased in the aftermath of the global financial crisis and the late-2000s recession. Public debt increased to 63% of GDP by the end of 2010, mainly due to decreased tax revenue, and the stimulus and tax cuts enacted in response by President Barack Obama. By February 2012, public debt had increased to $15.5 trillion.