Two days ago we considered GDP growth rates in the post-WWII era. Here’s what federal receipts relative to their respective year’s GDP look like while also considering growth rates. (You can click on all my graphs to move from these displayed thumbnails to the actual size.)
The line through receipts I chose is linear and you can see its increasing trend is very slight. I can not measure any correlation between federal receipts and GDP growth. The line through GDP growth rates was changed from a ten-year moving average in Monday’s blog post to an eight-year moving average in an attempt to better visualize the business cycle and trends from one cycle to another (H/T Shygetz).
The median and average level of federal receipts are both 19%. The last time we exceeded this average was 1996 – 2001 when receipts averaged 20.67% of GDP. It should be noted that tax rates and attendant laws are not the only factors that drive the level of receipt volume, instead tax liability variations are also a function of a change in our individual and collective income. From that perspective we should expect an increase in revenues relative to GDP during business up-cycles even if the tax laws don’t change. We also encounter a corresponding drop in receipts when GDP growth declines.
I remain bemused that advocating for receipts that effectively average in the high-teens makes one a U.S. lovin’ capitalist while arguing for receipts that average in the very-low twenties makes one a commie-fascist-socialist. Especially when we consider these effective rates differentials’ enormous impact on debt.
However and in spite of the Tea Partiers misplaced ire directed towards Democrats serving in the federal government; our tax burden doesn’t come only from federal taxes. So in the next blog post we’ll consider the total amount of government receipts including state and local taxes.
One last observation on the above graph – just because we pay more in taxes doesn’t mean we have less income available to procure goods and services. Sometimes private markets fail and its prudent to offer that good or service through the government with attendant taxes to fund this offering. If we’re paying 17% of our income on health care from the private sector, but can switch to paying taxes and receive more healthcare services where healthcare costs nominally decrease that could be a good policy change. If we chose this option we’d see a higher effective taxation rate and an increase in the percentage of government receipts relative to GDP which would appear to be a bad thing when in fact we’re getting more services for less out-of-pocket costs*.
So if we did make such a change, we’d also see another one of my metrics also go down, assuming no other economic impact (which is not true**), and that is personal discretionary (after-tax) income. So while considering whether to finance healthcare through the government which is a more productive purchasing agent of healthcare, we need to be cognizant of how certain metrics we use to measure success or failure may send failure signals that are actually the result of successful policy execution.
Here is how federal receipts parse out by source, using the OMB’s 2010 budget estimate:
Consider how powerful corporate interests are in D.C. relative to the amount of taxes they contribute. This illustrates one of several reasons why I advocate we don’t burden companies with taxes except fees to fund directly servicing their operations (e.g. gas taxes, fire protection, permits). Especially since the the market as a whole must pass these tax burdens on to consumers of the goods and services corporations market.
*James Hanley – When I noted my objective regarding median discretionary income being a good thing and you commented on a desire to use a metric that instead better measured how many goods and services we obtained and how that trended – I was with you.
**If we freed up money that was previously spent procuring less healthcare, we’d most likely see a collective increase in growth by spending it or investing it. In fact a Presidential commission on healthcare costs found (IIRC) that the net impact to GDP for universal coverage was predicted to be an annual marginal increase of 0.7% to GDP which is about $100 billion a year of increased goods and services. Some of this would come from a more productive work-force, e.g., less sick days.
Federal Receipts: Office of Management and Budget Historical Table 1.1. found at this page.
GDP from Christopher Chantrill’s “U.S. Government Revenue” site. That site is getting its data from: “GPO Access” which is the Government Printing Office.