Did You Know That Taxes Are Low And Spending Is High?

One of the Republican mantras during the debate to increase hte debt ceiling is that we have a spending problem and not a revenue problem. As it turns out, receipts as a percentage of Gross Domestic Product (GDP) are at an historic low, while spending is at an historic high. For 2009-10, government revenues were under 15% of GDP. You have to go back sixty years to 1950 to find a comparable level. Since 1940, there have only been eight years when revenue was less than 15% as a percentage of GDP (1940-43, 1949-50 and 2009-10). See Historical Tables: Budget of the U.S. Government 2011, Table 1.3, which you can find here. To be fair, the last two years are an anomaly. The same report predicts that receipts will increase to 16.8% in 2011 and 18.1% in 2012. For the post-World War II era, government receipts have traditionally been more than 15% but less than 20% of GDP. The only post World War II year in which receipts were greater than 20% was 2000.

Using the same measure, spending is historically high. In 2009-10, spending as a percentage of GDP was approximately 25% of GDP. The last time spending was that high was 1946. However, in fairness, there have been many years when spending exceeded 20% of GDP (1942-46, 1953, 1968, 1975-96, 2006, 2008-11). So which recent Presidents kept spending below 20% of GDP? President Clinton (1997-2000) and President George W. Bush (2001-05 and 2007).

So what is "normal" about receipts and expenditures? In recent years, receipts above 20% but below 25% of GDP are typical, while expenditures around 18%-22% of GDP. The past two years have been unusual in that receipts have been below historic levels and expenditures have been much higher. That has led to the history-busting deficits that I described in my prior post.