Political  Calculations

Now that we've looked at the last decade's worth of data for both Greece and Spain, two nations whose deteriorating debt situations could well blow apart the European Union, we thought we'd turn our attention across the Atlantic Ocean and look at what has happened to both government spending and tax collections per capita with respect to GDP per capita in the United States in the years from 2000 through 2011. Our results are presented in the chart below:

 

There's a lot going on in the chart, so let's start at the beginning. In the year 2000, the U.S. government ran a budget surplus, as the nation benefitted from outsize tax collections resulting from the peaking of the Dot Com stock market bubble, which reached its maximum inflation in August of that year. United States Government Spending and Tax Revenue per Capita vs GDP per Capita, 2000-2011

That situation reversed after the bubble burst in the following month and entered its deflation phase as the U.S. economy entered into recession. The deflation phase of the Dot Com Bubble would last until June 2003.

Without the stock market bubble to sustain them, the U.S. government's tax collections fell during this period of time, even as the U.S. government's spending increased at a steady rate. The result of this situation was to swing the government from running annual budget surpluses to running annual budget deficits instead, as the federal government's revenues from its taxes on investor capital gains plummeted.


Political Calculations

Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.

Be the first to read Political Calculation's column. Sign up today and receive Townhall.com delivered each morning to your inbox.

TOWNHALL FINANCE DAILY

Get the best of Townhall Finance Daily delivered straight to your inbox

Follow Townhall Finance!