A Little Perspective On Deficits: It’s All About The Revenue

Whilst the epic debate on the debt ceiling is waged, I thought it was relevant to take a look at the budget balance historically juxtaposed against personal income tax revenues.

Here is a graph comparing Personal Current Taxes as a Fraction of GDP against the Federal Budget Balance as a Fraction of GDP:

Taxes_vs_gdp

Surprise!  It turns out that they are nearly one and the same.  A couple of other observations: 

  1. They are highly cyclical – which should be no surprise:  it’s highly tied to marginal economic activity & employment.
  2. They are highly structural – which also should be no surprise:  tax rates have plummeted for years, while the income distribution has skewed strongly in the favour of high-earners (thus the more highly taxed)

It’s every earning group, as well:  the bottom quintile of earners have seen their tax burden get slashed in half, while the top 1% have seen a reduction from 37% to 29.5%.

This graph comparing Personal Current Taxes as a Fraction of Wages against the Federal Budget Balance as a Fraction of GDP may more demonstrate the falling income tax burdens:

Taxes_vs_income

Don’t let this fool you into thinking that I’m an advocate of raising taxes.  The Federal budget deficit is merely a private sector surplus, and the rapidly delevering private sector needs this injection to maintain private sector equity during the process.

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2 Responses to A Little Perspective On Deficits: It’s All About The Revenue

  1. TylerNull of YouTube says:

    “… ON DEFICITS …”It’s all about spending. Your chart merely hides the spending part by absorbing it into the “Federal Budget Balance” contrivance. The average of which is seen to sink monotonically into ever more negative territory REGARDLESS of whether the average of the taxes chart went up or down. Beyond that, if one spends beyond their means, it would remain peculiar to blame only the income (revenues). Especially so if that income were $4,500.000.000.000, and had increased about 24% in the last four years. No?

  2. TylerNull of YouTube says:

    Pardon, the last bit should have read “if that spending”, not “if that income”.

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