Revenue Flat, Spending Up

TW: Economist has been doing some work on U.S. fiscal policy. They are a good source, fiscally conservative but not dogmatic on either spending or taxes in other words realistic. This chart starts in 1980 not by coincidence. 1981 was when the Reagan Revolution introduced the U.S. to massive deficits. What does this chart say to you?

To me I see revenues as a % of GDP gyrating but at the end of the day staying roughly flat. The gyrations related primarily to the Reagan tax cuts, then the W. Bush tax cuts (for the wealthy) and finally the Great Recession which decimated tax receipts.

On the spending side Reagan increased spending (largely on defense) then Clinton balanced the budget (with zero Republican votes in '93) partially on the back of the Peace Dividend as well as strong overall economic growth. Then spending began to rise again with W. Bush before skyrocketing with the bailouts in late 2008 and 2009 combined with some stimulus. In the out years spending rises as social security and Medicare begin to bite hard, note the spending rise has little to do with any new Obama policies as they have yet to be enacted and the health care reform would show up as essentially deficit neutral in this type graph.

Fundamentally this graph portrays a nation whose taxes have remained flat (at least at the federal level), yet whose consumption of social security, health care and defense continue unabated and are rising faster than GDP. When a cost is rising faster than GDP then either that cost curve must be bent downward or one has a bad problem.