With the end of the federal fiscal year in September, statistics for 2010 show the federal deficit declined as a percent of the Gross Domestic Product. The federal deficit was 10% of the GDP in fiscal year 2009, whereas the federal deficit was 9% of the GDP in fiscal year 2010, according to the Congressional Budget Office [.pdf]. While this is a slight decline, the 2010 deficit is still the second-highest since 1945, when the federal deficit was 24% of the GDP. Three prime reasons explain why the 2010 deficit is high as it is in comparison to the past 6 decades.
First, a higher unemployment rate has resulted with lower revenues for the federal government. The unemployment rate has been above 9.4% for 17 consecutive months – only second to the streak of unemployment during the Great Depression in the 1930’s. Second, the recent recession, especially the inflated unemployment rate, has led to increased spending in response to the economic conditions. For instance, the cost of unemployment benefits rose 35% in 2010. Third, the 3 largest entitlement programs, Social Security, Medicare, and Medicaid, inclined 5.4% in 2010. This marks the 5th consecutive year Social Security has grown – gradually rising from 4.1% of the GDP in 2006 to 4.8% in 2010. Therefore, the federal deficit is as high as it is because of an increased demand on government outlays, as well as a decrease in government revenues – a dangerous combination for any balance sheet.