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 that same period, the ratio of government spending to GDP has increased from 3% in 1900 of GDP to now just above 42%:
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 $16,898 billion:
Conclusions
Here are some theories that I’ve been voicing or working with that seem to be supported by the facts presented above:
- In the long run, raising taxes does not seem to be a valid solution to battle deficits and the ensuing debts as can be evidenced by the correlation between a rising ratio of tax collections to GDP on the one hand, and a virtually permanent and accelerated increase in the absolute inflation adjusted level of the public debt.
- “Taxing the rich” does not seem to be a valid solution in battling deficits and debts as can be evidenced in the fact that from 1986 through 2007 the share of taxes paid by the rich doubled while the absolute inflation adjusted level of the public debt even more than doubled, and the debt to GDP ratio increased from 60% to 80%
- In fact, increasing the tax revenue seems to supply the state with additional collateral to use to borrow against future incomes. This could explain the long term correlation between tax revenue and public debt.
- Raising taxes is not a solution to the problems with government budget deficits, but rather the very admission of failure to attack the problems associated with those deficits.
Well, may be we should tax the top 0,1% considering they own 90% of total wealth on earth :
https://www.theguardian.com/business/2014/nov/13/us-wealth-inequality-top-01-worth-as-much-as-the-bottom-90
To Earn 1 Billion or 100 millions/year doesn’t change a lot in term of life quality, healthcare, education and so on, while the difference betweens 20000$ or 2000$/year is the difference between barely make it and being homeless.
By the way, there is no indication about the way the contributions of respective category have been calculated, but I have here an another narrative about income tax in the US in 1950 :
http://federal-tax-rates.insidegov.com/l/35/1950.
There is also a timeline about the evolution of max and min tax rates betweens 1913 and 2015.
Clearly, the top 1% and 0,1% can’t complain about the current situation.
I’m curious of what would be the current level of debt hold by gov and the middle class if contributions by the riches had stayed at the same level of 1950.
The main issue faced by the US economy in the coming years is not the level of taxation of the the top wealthy, but the burden of debts faced by the middle class after to the resignation of government to finance sectors such healthcare, education and other historic public sectors to justify lower taxes for the wealthy, and fallacious trickle down economics.
We’re heading literally towards a crash in slow motion due to that level of debt and soon or later the riches will have to pay again or the system will collapse altogether, struck by social unrest, and ultimately will lead to the end of the role of the us in worldwide scene.
The 1917 russian revolution remind us of what happens when inequalities reaches extreme levels…