[UPDATE in text.]
I am working on a project for the Macdonald-Laurier Institute, summarizing the U.S. government’s sorry fiscal situation. I worked up a chart showing the history of federal spending from FY 1930-2011, and it was just what I expected: big surge up through World War II, then a major pullback, and finally a gentle secular increase until a tapering off in the Clinton years, followed by an explosion under Bush then Obama.
I then went in the text to talk about federal tax receipts, and said (without having constructed the chart) something like, “As Figure 2 shows, we see a similar pattern–though not as high, because of budget deficits–for federal tax receipts.” Then I went to Excel and whipped up the chart, and was shocked by what I saw.
I don’t think I have ever seen the below chart, have many of you? Most data sets start in 1947 or later. Look at this thing:
(Note that the blue line [left axis] is on a semi-logarithmic scale, so that its slope represents the rate of increase in nominal receipts.)
I actually had to go double-check the numbers. This illustrates that the federal government incredibly jacked up how much it taxed out of the economy going into World War II…and never pulled back. [UPDATE: Actually that’s not right, there was the ratchet effect. But my point is, this chart looks nothing at all like what happened with federal spending as a % of GDP. Relative to that, there was essentially no pullback in taxation as a share of the economy, after World War II. We hit a permanently higher level.) Indeed, in FY 1944, at the height of the war, the government collected a record 20.9% of GDP in receipts. In FY 2000, the feds collected 20.6% of GDP in receipts.
Last thing: I am referring in the post title to Bob Higgs’ famous “ratchet effect” of crises. I am quite sure Higgs knows about the above chart, so I’m just making a joke of course. If you want to see a compilation of Higgs talking about wartime statistics, see this video (compiled by Niels V.).