Tuesday, October 9, 2012

Spend Trend

Drawn into the stream of undefined illusion
Those diamond dreams, they can't disguise the truth
--Level 42

We have shown some of these data before (e.g., here, here, here), but this chart (source here) nicely depicts the progression in spending over the past 100 years.


The Federal Reserve Act and the Sixteenth (income tax) Amendment were both passed in 1913. Note that prior to 1913, federal spending as a % of GDP consistently averaged 2-3%.

We should also note that to the extent that GDP is over-estimated (and it may well be), then the percentages would be even higher.

One takeaway from the above is that, in addition to the increased spending, is that it has been increasingly difficult to tax at the same rate as spending. Stated differently, there appears to be a ceiling for taxes at about 20% that is politically difficult to pierce.

If fed spending cannot be funded from taxes, then politicians are prone to borrow and print to fund their ways.

As such, one thing we could add here is federal debt as a % of GDP.

There can be little doubt that the current trajectory of federal spending can be traced back to institutions of the early 20th century. It has taken the system 100 yrs to move toward the tipping point.

1 comment:

dgeorge12358 said...

March 28, 2012

The House overwhelmingly voted down a bipartisan budget proposal that would have directed lawmakers to reduce the federal deficit by more than $4 trillion over 10 years through a combination of spending cuts and tax increases.

The vote on the budget resolution, which was defeated 382-38, shows how far apart Republicans and Democrats remain in Congress over how to address the growing U.S. debt.

The lawmakers' proposal received many more votes than the White House's budget proposal for fiscal year 2013, which was voted down on the House floor 414 to 0.
~online.wsj.com