Wednesday, July 20, 2011

Federal Debt and Tax Receipts

I published this chart the first time last February in the earlier version of LaMarotte. I thought it should be shown again on this platform in the context of the current debate about the debt ceiling and whether tax increases should or should not be a part of the discussion surrounding debt levels.

The chief point here is the relatively flat performance of Federal tax receipts since 1944. That flat performance suggests that taxes are not the problem—but the contrast between spending and taxes might be. The blue line, showing debt, tells ... the rest of the story

In addition to the trends, I’ve added some indicators to show when tax receipts hit low points since the Eisenhower years. These came in 1959 under Eisenhower, in 2004 under GW Bush, and under Obama at present.

What this graph shows through the harsh lens of national statistics is the weakening character of our political establishment. World War II produced a very sharp upward climb in tax receipts intended to fund that conflict. In 1934 (not shown) tax revenues were 4.8 percent of GDP. By 1944 they had reached 20.9 percent, never topped since. This 16 point increase in revenues managed to bring the debt down after the war was over. Pause for a deep breath. But then, beginning in 1981, the national debt began a slow but relentless upward climb. It went from 32.5 percent that year to 93.2 percent of GDP by 2010. This 61 point ascent of debt was not, repeat NOT matched by any upward motion of tax receipts. (The source of this graphic is the Office of Management and Budget (here), Tables 2.3 and 7.1.)

My conclusion in February was—and it hasn’t change since—that the nerve of the American political elite has simply failed! It didn’t have the intestinal fortitude to match expenditures by taxation. It asked us to read its lips rather than to feel its guts and biceps. That same failure of nerve—or insight, or responsibility, or will—is manifest now in attempting to solve the debt problem entirely by program cuts without any additional revenues.

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