Week 28, 2011: US Govt Income & Expenditure

Summary: In the US, intense cross-party negotiations have been going on all this week to try to agree on a budget deal that would allow the US debt ceiling to be raised. Roughly speaking, the Democrats want to raise revenues through increased taxation, while the Republicans want to cut expenditure through lower public spending. We return to a similar chart we produced on the UK, to help show the growth in spending and revenues over the past 50 years.

What does the chart show? This chart is almost exactly the same as the one produced in Week 13 for the UK. The blue line shows the US Federal Government receipts per capita; mostly through taxation. The red line shows federal outlays per capita. Both are measured in 2005 dollars, to negate the effect of inflation. The dotted lines represent official projections in the latest budget proposed by President Obama.

Why is the chart interesting? In some ways the US situation is similar to that of the UK. For example, both spending and revenues per person have increased significantly since 1960, and in the case of spending, this is a process that has accelerated since 2000. Generally, outlays have been higher than receipts, with the exception of a brief period between 1998 and 2002.

However, where it differs is that there have been two big dips in receipts since 2000 (the one in 2008 was probably not intentional, as it reflects the drop in paid taxes during the recession). Meanwhile, there has been no corresponding effort to cut spending at all. The current gap between the average amount paid in taxes and the average amount spent per person is almost $4000. This difference has to be made up by borrowing, which the government will no longer be able to do unless they come to an agreement before August. The official projections go some way to closing this gap, but can hardly be seen as a compromise; taxes increase by $3000 per person, but spending also increases by a further $1000 per person.

The Republicans currently say they won't accept any tax increases. Realistically, the final deal is going to have to include both tax increases and spending cuts.