Solving the Debt/Deficit – Tax Receipts and GDP

Here is an excel sheet from the White House that shows Federal Tax Receipts and Federal spending as a percentage of GDP.

Table 1.2—Summary of Receipts, Outlays, and Surpluses or Deficits (-) as Percentages of GDP: 1930–2016

Here’s what to take from this…

1- Since 1940, taxes received as a percentage of GDP has remained between 15% and 20%. This is regardless of the tax rate – whether it’s Carter’s 70% rate or Reagan’s 28% rate – it didn’t matter. So when the economy is booming, there is more tax money coming in because the GDP is larger. When the economy shrinks, so does government income due to tax income. What this says is that taxing the rich won’t matter in paying down the debt.

2- Note the Surplus or Deficit column. Two things to note.
a) The amount of negative years versus positive years.
b) The large jump post 2009.

What this says is that government is continuously spending beyond the money it receives. CONTINUOUSLY.

The solution to the debt and deficits is simple.

  • Government needs to spend within it’s means.
  • Government needs to do what it can to boost the economy in order to increase the amount it receives – and then use extra money to pay down debt.

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