U.S. Government Is Spending and Taxing the Same As It Did 40 Years Ago

March 3, 2014 — 1 Comment

Interestingly, the United States government’s federal taxing and spending, as percentage of the country’s GDP, has been nearly similar in the last four decades, as seen in the two graphs below.

Source: Congressional Budget Office Credit: Quoctrung Bui/NPR

expenditures

In 1974, the government’s federal taxes were 16 percent of the U.S. economy; today, the government’s tax collection, as a percentage of the GDP, also sits near 16 percent.

During the early 1970s, the U.S. government spent about 20 percent of what the country made; the percentage was nearly the same in 2013.

The graphs tell a neat story: through economic booms and recessions, the government finds itself profiting and spending the same as a percentage of the GDP. The 1980s recession and high unemployment rates caused the government to tax less and to spend less. However, a decade later, the government found itself taxing more because of the extended period of economic prosperity. The ratios find themselves at similar points as they were forty years ago.

Though the numbers have not changed, the composition of the different spending and taxing categories have changed a bit. Government expenditures on Medicaid and Medicare, relative to the whole economy, have increased. On the other hand, military spending has decreased.

Furthermore, the payroll tax, what funds Medicare and Medicaid, has grown as opposed to the dwindling corporate taxes.

How does the United States compare with the rest of the world?

Tax to GDP Ratio (United States: red; OECD: blue)

According to new Organization for Economic Development (OECD) data in the annual Revenue Statistics publication. The average tax revenue to GDP ratio in OECD countries was 34.6% in 2012, compared with 34.1% in 2011 and 33.8% in 2010.

Countries with the Highest Tax to GDP Ratio

Countries with the Highest Tax to GDP Ratio

Countries with the Lowest Tax to GDP Ratio

The OECD report also showed additional factors that caused the tax ratio increase in the last couple of years. In progressive tax regimes, revenue rises faster than income during periods of real income growth. “Discretionary tax changes have also played a role, as many countries raised tax rates and/or broadened tax bases. Discretionary tax changes played a greater role in a handful of European countries where GDP levels actually declined in 2012.”

Compared to the rest of the world, the United States’s tax to GDP ratio sits near the average of all the OECD countries. If we look at the numbers from the two graphs above from the last forty years, it seems as though the ratio may alter with external economic factors; however, the ratio should return to the average that we now see.

JDKatz: Attorney's At Law

JDKatz, P.C. is a full-service law firm focused on tax lawbusiness and transactional lawestate planning and elder law. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys, or visit http://www.jdkatz.com.

One response to U.S. Government Is Spending and Taxing the Same As It Did 40 Years Ago

  1. 
    amenajariinterioare82 March 3, 2014 at 11:49 am

    Congratulations on the beautiful topics in your blog If you like, you can enter our blog and if you like http://amenajarirenovariapartamente.com and give us a like. Thank you and greetings from Romania

    Like

Add your $0.02

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s