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Federal Revenues Vs. Spending

Federal Spending V Revenues
Click on the graph for a larger view

I’ve been collecting data and put the graph above together with some historical annotations to give you a feel for how our government has balanced its revenue and spending since 1902.

You can see that we did really well as a country until Nixon took the US off the gold standard and we began to print as much money as we needed. The big exception was during WW2 when we ran significant deficits in order to win the war.

The whole concept of deficit spending is ingrained in popular economics (popular with politicians and university economics professors) through the work of John Maynard Keynes. Unfortunately, and this is from the view of someone with a couple of accounting degrees and not an economics degree, I see that the governments around the world have taken Keynes basic theory of short-term government spending (on things like infrastructure that generate economic momentum) and translated that into long-term deficit spending on preferred projects (whether its entitlements or defense).

There are some popular misconceptions about things that have happened along the way (the Bush tax cuts really did stimulate revenues – the misconception that everyone quotes is the revenues relationship to GDP which shrank, but that was because spending was growing faster than revenue collections).

Probably the most important thing to note is that during the period of March 1991 to March 2001, the US did not have any sort of economic recession. That allowed economic growth to positively impact tax revenue collections, and that combined with fiscally prudent budgets during the Clinton years, a working relationship between Congress and the President (the good old days), the Peace Dividend from the end of the Cold War, and Welfare Reform all acted to keep spending in check as revenues grew.

As you look at the graph, you can see that there is currently a significant gap between spending and revenues. Whomever is elected President tomorrow will have a difficult job bringing those two closer together. From a historical perspective, some bad decisions in the past 65 years by politicians that have gotten us where we are today. The changes it will take to fix our situation will not be fun.

When we wake up Wednesday morning, 1/2 the country will be happy and 1/2 the country will be upset. So I’d like to give everyone a bit of perspective through the words of Eric Idle at this past Summer Olympics: “Always Look On The Bright Side of Life.”

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For those of you purists that want a taste of the original version from Monty Python’s “Life of Brian,” you can find it here: This links you to Eric Idle in Life of Brian If you’ve never seen the movie, and you are easily offended, please do not click on the link – it is typically offensive in that Monty Python sort of way.