Well There’s Your Problem: Fed Spending +299% Home Income +27%

Growth in Fed Spending 299%, Household Income 27%

Growth in Fed Spending 299%, Household Income 27%

Original From This Site

Saw this chart go by on one of the financial news programs (CNBC or Fox Business, I think) and went hunting for it. Kind of says it all…

I don’t think that the 27% increase in household earnings is under taxed, looks more like that exponential 299% increase in government spending that’s the issue… Especially that vertical part at the right margin / end…

UPDATE: Added Chart From Forbes

In a comment below, Another Ian pointed to a VERY interesting and well written article. (Via a link to another link that eventually lands you at the article: http://blogs.forbes.com/warrenmeyer/2011/07/14/its-a-spending-problem/ )

That article has this rather remarkable chart in it. IMHO, the revenue “bump” in the ’90s – 2000 comes from two sources. 1) The Housing Boom and all the capital gains it generated during the bubble. 2) ROTH IRA conversions under Clinton, a “one time” bump in tax revenue that then cuts all future taxes on that income AND any income it generates over time.

Similarly, the plunge now is due to the housing bubble collapsing (so no cap gains to be had) AND the stock market crash (so yet more cap losses to offset / carry back to old cap gains). Basically, tying government income to capital gains and income means that recessions whack the government income too and bubbles inflate it. Gee, wonder why The Fed keeps doing things that promotes bubbles…

At any rate, I think it’s a rather dramatic demonstration of the power of The Laffer Curve too. It argues that the peak of the curve is at about 18% tax rake…

Federal Spending vs Collections of Tax vs GDP

Federal Spending vs Collections of Tax vs GDP

Original Image (As a link to the original, made from public data, and with a non-profit educational use, it is my belief that this falls under the ‘fair use’ doctrine.)

It’s also pretty clear that we were in in fair shape right up until the bubble burst and reality hit… but not into truly Dire Straights even then, until the TARP, Bailouts, Porkulus, et. al. were shoved into the pockets of the well connected…

One other point: Given the massive manipulations of the tax codes over the years, and the very flat 18% revenue trend line, it’s pretty darned clear to me that, like it or not, the Federal Pig needs to be rendered over the BBQ until back to that line (and minus some so as to pay down the debt…) as any attempt to deal with the problem via manipulation of the tax code is doomed to fail. No iffs, ands, buts, or maybes. We’ve “run those experiments” and the “rake” stays 18% +/-3% (and with the +/- a function of biz cycle, not codes or rates, so not control-able nor sustainable).

Sorry Obama and the Dimocrates, your fantasy of “Soak The Rich” is doomed. Welcome to Reality 101…

Note to Republicans: Demand that Federal Spending be limited at 18%. Hold to that demand. Anything else is just a slow death. We’ll be watching… and brewing some nice bracing HOT Tea…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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21 Responses to Well There’s Your Problem: Fed Spending +299% Home Income +27%

  1. Jerry says:

    A hockey stick that is unfortunately real.

  2. PhilJourdan says:

    That is good to see in black and white (or red and blue as the case may be). I think most people KNOW that fed spending has far outpaced inflation, income, and just about every other indice out there. But seeing it puts the current debate into perspective.

    I hope the Republicans hold, but give past experience, I am not confident of it.

  3. H.R. says:

    This one was in my local paper. I’ved clipped it and put it above my desk at work.


  4. gallopingcamel says:

    The federal spending has to be cut dramatically. The longer we delay the cutting, the more painful the process will be.

  5. In my opinion, this is not a mistake.

    It is a carefully designed plan to lead us into servitude.

    As I mentioned earlier, I do not understand economics.

    But I have a good nose for BS.

    With kind regards,
    Oliver K. Manuel

  6. The goal of the process should be to pay off the debt. The US has done this before. No one is even pretending that this is possible now.

    The two primary modes are when the USG spends more than it takes in, and when revenues exceed spending.

    When it spends more, the urgency is to raise revenues.

    When revenues exceed spending (as happened very briefly in the late 1990s), the urgency is to ramp up spending. In fact, that was already under way: Clinton’s OMB predicted ten more years of wonderful revenue even as the markets were collapsing in 2000, so the spending, geared to fantasy revenue, quickly outpaced the real income. THAT is what George W. Bush inherited, not to mention the 9/11 effects a few months later.

    But nowhere in any of these scenarios is the notion of “gee, we’ve got a little extra cash coming in, let’s pay down the debt.” Instead, they will always buy votes, and power, and create favors owed. There will never be “extra cash.”

    And the floor of “non-discretionary” spending slopes higher each year — so that in the near future, we could not afford to have this government even if it spent zero on discretionary items, as the non-discretionary floor will have exceeded any reasonable revenue projection.

    We cannot inflate our way out of that.

    The games being played to make the situation seem palatable are annoying to me. For example, the Obamacare debacle, with ten years of revenue matched up with six years of cost, just to make it seem close to a break-even. But look at the slope of the cost in the last year! A ten-for-ten match up would have revealed how staggeringly expensive it is to have a government controlled healthcare system; they had already done a lot of damage before, so how much worse it is under Obamacare is instructive.

    The eleventh year of Obamacare is a “don’t look at that” issue, and like so many others whose numbers Obama would like to keep in the exclusive control of “professional politicians.”

    But the numbers are visible enough. They look bad indeed. And we’re not the only ones who can do this math, and think about the future. Some of the others that can do this are the ones we’re going to, cup in hand, looking for more credit to spend.

    ===|==============/ Keith DeHavelle

  7. paulID says:

    Amen Oliver AMEN.

  8. Jason Calley says:

    @ Keith DeHavelle

    “When revenues exceed spending (as happened very briefly in the late 1990s), the urgency is to ramp up spending.”

    Please correct me if I am mistaken, but I think that the so-called “Clinton surplus” was a bookkeeping fiction. The “surplus” arose after money from Social Security (which was running an excess at the time) was borrowed into the general funds and then replaced by special Treasury Bonds. The amount was then listed as “revenue” even though it was actually borrowed. This explains why even though the US supposedly had a surplus at the time, the debt continued to rise.

    Of course Clinton was not the first to take the money from Social Security and move it into general funds. LBJ did so first to help finance the war in Vietnam and the Great Society program. My memory of it is that most legal experts at the time felt that it was illegal, but no one cared enough to impeach him so it became the new norm. Every President (Democrat or Republican) since LBJ has continued to do so. Clinton was merely the first to borrow the money and then call it revenue.

    @ Oliver K. Manuel

    “It is a carefully designed plan to lead us into servitude.”

    I agree strongly. In my opinion, Nixon was the one to start the final fiscal and cultural strip-mining of America when he went to China.

  9. Richard Ilfeld says:

    “America has paid off her debt” ….

    Well, it’s been a while. Andrew Jackson, I believe. In government speak, a balanced budget today only pays the rollover interest while the debt itself continues.

    A scarier number is the gap between the unfunded liabilities of the entitlements and the expected yield of the funding mechanisms.

    Either a lot of folks are going to take a moderate hit, or a fair number are going to be completely SOL.

    Same deal with unfunded defned benefit government pensions.

    Taxpayers to employees….how many of you can we afford to pay, five thousand or six thousand. Do you feel lucky, Punk? Well, do you?…….

  10. Pascvaks says:

    Stewardess: “Beautiful View Out The Windows Ladies and Gentlemen. We’re Currently Flying Over The Deepest Canyon In The World, at an Altitude Never Before Achieved by Air Breathing Aircraft!”

    Pilot: “Please Fasten Your Seatbelts! We’ve Run Into A Little Turbulance and We’re Out of Fuel And Will Be Landing Any Minute!”

    Stewardess to Pilot over PA: “There’s NO airport down there!”

    Pilot to Stewardess over PA: “Keep Your Voice Down, Damn It, One Of These Fools Might Hear You, You Want to Start a Panic? You and the other Stewards need to jump out the tail hatch. The flight crew has already jumped, I’m leaving now. See you on the ground.”

    (Yhep! Time for Bigger Great Depression.)

  11. j ferguson says:

    more a field hockey stick but there it is. only this one’s real.

  12. It would be nice if the total federal spending were shown on a per household basis for comparability of percentage change.

  13. Hugo M says:

    Carefully planned strategy or a consequence of the exponenential rise in accumulated interests? Try this, e.g., in R and look at the steep rise starting after 50 years of constant accumulation:

    xyplot(K0*(1+p) ^t ~ t,xlab="years",ylab="base capital + accrued interest")

    Considering that 66 years had passed since 1945, i.e. since that game had been mostly restarted (or rearranged), the biblical Yubilee year obviously was a rather wise invention (as would be exclusively state-owned banks and thus the administrative souvereignity over money supply and interest rates).

  14. Richard Ilfeld says:

    Yikes – an equation.

    No description of the curve, however, reveals the evil within.

    Our road to perdition started with the best of intentions — helping the poor. As egregious as the probelms of our cities are, and as much as we may consider “the poor” to be indolent, self-immolating grasping ne’r-do-wells, I would submit that it is not the poor who are the core of the problem.

    It is the increasing tendency of the government to reward and subsidise failure.

    Entitlements have a chance to be self regulating in a vibrant economy. But forcing capital to firms that have fallen upon hard times, and would be ejected by a free market, is a huge cost multiplier. There is the direct cost of subsidising these turkeys. There is the mis-allocation of human and financial capital. There is the welfare and retraining when the inevitable breakdowns occur. There is the erosion of the fundamental of a sucessful [capitalist] society, to enforce laws and contracts, and off humanitarian aid (short term) to thos caught in the forces of creative destruction…..Is there anybody reading this board who hasn’t been there at least once?

    Its the solar panels and high speed rail, and the very idea the government spending is “investment” or that government has competence to direct capital flows, and the triple whammey of wasted resources, inappropriate allocation of capital, and workforce attitude destruction that make the curves diverge at an impossible rate.

    Reduce it to actual and tansparent transfer payments from makers to takers and it will still be excessive, but, perhaps, controllable.

    Government, competant? The EPA is going to fine refiners for not blending cellulose base ethanol in a timely fashion, in spite of the fact that no such product in commercially available.

    Literally billions of dollars of market distortion. Medical payments we can see and manage. But this kind of nonsense has Atlas not only shrugging, but rolling of the floor in a fit of sardonic laughter!

  15. E.M.Smith says:

    I’ve added an update with a chart from the Forbes article in the link from Another Ian. It’s very interesting…

  16. @Jason Calley, who wrote:

    Please correct me if I am mistaken, but I think that the so-called “Clinton surplus” was a bookkeeping fiction. The “surplus” arose after money from Social Security (which was running an excess at the time) was borrowed into the general funds and then replaced by special Treasury Bonds.

    Yes; I remain annoyed as to how this is usually presented.

    Both graphs above need to be modified to reflect spending, as they currently show spending net of the effects of intragovernmental transfers.

    Now that these are running negative — i.e., decreasing effective net revenue — there will be a strong motivation to remove them from those calculations, just as there was a motivation to put this borrowing in during the 1960s because of the “happy” effect of disguising numbers.

    That happy effect can be projected out for any number of years. And it will soon enough turn into a series of what might be called “lock box shocks.”

    ===|==============/ Keith DeHavelle

  17. Another Ian says:

    O/T but not by much!

    “48% Of Americans Think Obama Is Doing A Good Job

    Posted on July 15, 2011 by stevengoddard


    51% also think the captain of the Titanic was successful.”

    From http://stevengoddard.wordpress.com/2011/07/15/48-of-americans-think-obama-is-doing-a-good-job/

  18. Pingback: In other news… » Anonymong

  19. ecuamantis says:

    I think Ron Paul sums this issue up quite nicely in his recent statement against the Cut, Cap, and Balance Act.
    It’s refreshing to see a politician who actually gets it.
    There is some hope yet…

  20. E.M.Smith says:


    Gotta love someone who can do math… from that link:

    Statement on the Cut, Cap and Balance Act
    Mr. Speaker, I rise to speak against HR 2560, the Cut, Cap, and Balance Act. This bill only serves to sanction the status quo by putting forth a $1 trillion budget deficit and authorizing a $2.4 trillion increase in the debt limit.

    When I say this bill sanctions the status quo, I mean it quite literally.

    First, it purports to eventually balance the budget without cutting military spending, Social Security, or Medicare. This is impossible. These three budget items already cost nearly $1 trillion apiece annually. This means we can cut every other area of federal spending to zero and still have a $3 trillion budget. Since annual federal tax revenues almost certainly will not exceed $2.5 trillion for several years, this Act cannot balance the budget under any plausible scenario.

    The rest of the link is just as good. Thanks for that…

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