Monday, August 20, 2012

Taxes Vs Debt: Where Does US Funding Come From - Chart Of The Day

A key sticking point in the ongoing presidential debate is what happens to US tax rates, either for just those making over an arbitrary $250,000/year, aka "the rich", or for everyone. To put this debate into perspective, here is a chart that shows how over the past 20 years the US funding needs (demonstrated previously here), have been met in terms of the only two components of US funding - tax revenue and debt issuance.

Some highlights:
  • For the 12 months ended July 2012, total US receipts (virtually all of them taxes) amounted to $2.4 trillion.
  • At the same time, for the 12 months ended July 12, total US debt issuance amounted to $1.6 trillion.
  • Total matched funding need for the LTM period was thus ~$4 trillion.
  • In the 1990s, reliance on debt funding declined progressively from 30% to 0% in 2001.
  • Since then debt issuance has soared, and at its peak, funded 50% of all US funding needs in the aftermath of the Lehman collapse.
  • It has since stabilized at just over 40%.
  • Assuming all millionaires paid 100% taxes on their income (Laffer curve aside), this would result in just about $1 trillion in tax revenues for the US government (based on 2008 IRS income data), which would plug the US funding gap for less than 4 months.
  • Looking at the chart above, and seeing the secular increase in the debt-funding component, probably a more reasonable question is why pay any taxes at all? After all, as increasingly more debt was used to plug deficit shortfalls, the rate on said debt declined progressively, hitting all time record lows just over a month ago.
  • Taking the thought experiment (as ridiculous as it may be) to its absolute extreme, wouldn't numerous quasi-socialist goalseeking "theories' such as MMT be perfectly validated if instead of collecting any tax revenue, the government funded itself exclusively with debt? After all, to both the GOP and the Democrats, it increasingly appears that "deficits don't matter." Worst case: the US pulls a Greece or Belize and just says "we won't pay." Read more.......

1 comment:

  1. It is a spending problem, not a tax problem. Simple mathamatics. As long as we have lazy tax eaters the likes of Obama, Reid and Pelosi will be running up the national credit card like a trailer park skank on crack.


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