Monday, March 10, 2014

Government Spending : History of Taxing & Spending

As the saying goes, one can remove the spots from the leopard but then calling it something other then a leopard does not edify, it's still a leopard and it will eat you. The same for government spending and how it will devour us if we don't make an effort to fix the problem.

Another saying that most everyone is aware of when considering how congress and the ruling party in Washington will address the spending problem is, 'the spirit is willing but the flesh is weak', not to mention so is the mental capacity of politicians when comes to taking away their control of the money.

A Short History of Government Taxing and Spending
Source: Michael Schuyler, "A Short History of Government Taxing and Spending in the United States," Tax Foundation, February 19, 2014
February 28, 2014

From 1930 to 2012, government expenditures rose from 12.1 percent to 35.6 percent of gross domestic product (GDP), says Michael Schuyler, a fellow at the Tax Foundation.
It is necessary to describe government receipts and expenditures as shares of economic output, because the size of the economy determines whether a particular burden is manageable -- $100 billion in taxes would crush a $150 billion economy but would be much less problematic for an economy of $600 billion.
  • Schuyler notes that there are also other factors in addition to the size of GDP that should be considered in assessing the true impact of revenue and spending, including the complexity of taxes and whether programs are managed efficiently or wastefully, for example.
  • The cost of regulations (federal regulations were estimated at $1.8 trillion in 2013) is also significant but are not considered in Schuyler's analysis.
From 1900 to 2012, federal government expenditures were less than 3 percent of the overall economy. The government was very small up to the New Deal era, spending on defense, the postal service and a few federal laws. Budgets were balanced, if not at a surplus, and, up to 1917, most revenue came from customs duties and excise taxes.

But in 2012, federal expenditures had hit 24 percent of GDP.
  • Spending growth began in the Hoover administration and was amplified by Franklin Roosevelt. The same is true of taxes. Hoover increased the top marginal rate from 25 percent to 63 percent, with Roosevelt raising it up to 79 percent.
  • War years tend to be marked by higher spending and budget deficits, and in fact, expenditures reached 20 percent of output during World War I. From 1950 to 2006, average federal expenditures have exceeded the maximum spending levels of World War I.
  • Budget deficits became the norm after 1950, with Washington running a surplus very briefly at the end of the 20th century.
  • With the 2007-2009 recession, federal spending reached its highest levels at any time since World War II, while revenue dropped to its lowest level since the 1940s.
The size of government has soared since 1930, with receipts increasing from 11.1 percent of GDP to 26.4 percent and expenditures rising from 12.1 percent of GDP to 35.6 percent. If the government wants to continue this expansion, something must be done to cut out unnecessary programs and bring efficiency and transparency to tax policy.
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