During recent months, a lot of people have been talking about solutions/causes/issues related to government spending, taxation, and the public debt.
In following all such debates there are but a few simple historical stats that one should be aware of in my opinion, so as to make an assessment whether or not the proposed solutions to existing problems are actually new and untried solutions, or if they are just a dull repetition of past patterns:
Taxation in the US
Over the past century, government revenue in the US has increased from 7% in 1902 to just over 30% today:
In absolute terms, adjusted for inflation in constant 2005 Dollars, US government revenue has grown from $32.91 billion in 1902 to now around $4,481.27 billion, a 13,516% increase:
The share of income taxes paid by the top 1% income earners has increased from 25% in 1986 to 40% in 2007:
By the way, total income earned by the top 1% was around $1.6 trillion in 2010.
Government Spending in the US
In terms of absolute numbers, adjusted for inflation in constant 2005 dollars, government spending has grown from $12.9 billion in 1900 to now $5848.77 billion.
US government spending on education, for example, has grown from less than 0.01% of GDP in 1900 to now 6.3% of GDP:
US Government Debt
Total government debt in the US has grown from 10% of GDP in 1900 to now 120% of GDP:
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In absolute terms, inflation adjusted in constant 2005 Dollars, the public debt has grown from $43.86 billion to now $16,898 billion:
Here are some theories that I’ve been voicing or working with that seem to be supported by the facts presented above:
- In the long run, raising taxes does not seem to be a valid solution to battle deficits and the ensuing debts as can be evidenced by the correlation between a rising ratio of tax collections to GDP on the one hand, and a virtually permanent and accelerated increase in the absolute inflation adjusted level of the public debt.
- “Taxing the rich” does not seem to be a valid solution in battling deficits and debts as can be evidenced in the fact that from 1986 through 2007 the share of taxes paid by the rich doubled while the absolute inflation adjusted level of the public debt even more than doubled, and the debt to GDP ratio increased from 60% to 80%
- In fact, increasing the tax revenue seems to supply the state with additional collateral to use to borrow against future incomes. This could explain the long term correlation between tax revenue and public debt.
- Raising taxes is not a solution to the problems with government budget deficits, but rather the very admission of failure to attack the problems associated with those deficits.