Below's chart shows social benefit payments made by the government against the amount of personal taxes collected. As can be seen, individuals have been receiving significantly more in the form of benefits than they have paid for since 2000.
In real terms (further below), we can see that the nation has never received more benefits, YET real taxes collected by individuals are lower than when they peaked in 2000. In fact, we have never experienced a longer period of time (at least as far back as 1948) when more has been spent on social benefits than collected by personal taxes.
Individuals
As a nation, we have never saved so little (and for such a long period of time). The chart below shows the aggregate dollar amount saved by individuals since 1948 in nominal terms.
Since U.S. savings peaked in the early 1990's at ~$350B per quarter (in nominal aggregate, not real per capita terms), savings has collapsed to negative territory for the first time since the great depression.
Conclusion
You learn in Economics 101 that Automatic Stabilizers should be in place to raise tax revenue during the good times to pay for government benefits during the bad. With all the tax cuts we've experienced and a continued increase in benefits paid during the past 8 years, we are now moving into unprecedented times.
In fact, we've never spent this much on benefits relative to personal taxes at the beginning stages of a recession. The government is bloated and loaded with debt, while individuals are in a similar situation. Much of the "wealth" accumulated by individuals in place of savings is under pressure by a declining equity market, high inflation, and a deflating asset bubble.
With financing becoming more expensive and harder to come by for the government and individuals alike, tax revenues under pressure, and an economy which needs a debt laden and broke consumer to spend in order to grow, we're in rough shape.
Update
Below is the nominal chart shown on a logarithmic scale as requested. Compounding is an amazing thing and it shows how what may appear to be a small difference can create such significant issues over time.
Conclusion
You learn in Economics 101 that Automatic Stabilizers should be in place to raise tax revenue during the good times to pay for government benefits during the bad. With all the tax cuts we've experienced and a continued increase in benefits paid during the past 8 years, we are now moving into unprecedented times.
In fact, we've never spent this much on benefits relative to personal taxes at the beginning stages of a recession. The government is bloated and loaded with debt, while individuals are in a similar situation. Much of the "wealth" accumulated by individuals in place of savings is under pressure by a declining equity market, high inflation, and a deflating asset bubble.
With financing becoming more expensive and harder to come by for the government and individuals alike, tax revenues under pressure, and an economy which needs a debt laden and broke consumer to spend in order to grow, we're in rough shape.
Update
Below is the nominal chart shown on a logarithmic scale as requested. Compounding is an amazing thing and it shows how what may appear to be a small difference can create such significant issues over time.
Great site! Could we see the taxes and benefits on a logarithmic scale? Thanks
ReplyDeleteNice idea Harrier. It is now updated...
ReplyDelete