The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 80

The Myth of Federal Taxes

Every time those Washington S.O.B.s jiggle taxes, folks have heart attacks. I've felt that way myself; it's only natural. But tax changes create less economic effect than most folks imagine, and you shouldn't overreact to the media's mumbo-jumbo tax sensationalism. Despite legislators, who in their never-ending pitch for votes rewrite the tax code every two years and promise everyone the sky, the total tax take has grown at an almost perfectly steady rate—almost forever.

This chart shows half the picture (the rest is in Chart 78), total federal taxes since 1965, as reported in Uncle Sam's budget. You also see total federal expenditures and those same expenditures as a percentage of GNP. Despite numerous major tax revisions, reforms, simplifications, and what-have-you, total federal taxes have grown at a whopping 10.25 percent per year—and in the entire period, despite numerous “tax cuts” there has been only one year in which the government's tax take actually declined.

Don't let the media's superficiality and the politicians' phony tax-cut claims take your eye off the real ball—which is government spending. Federal expenditures grew even faster than taxes, at 11.25 percent per year. While this includes inflation (about 4 percent per year), it's notably more than GNP's 9.4 percent nominal growth. The upshot? Government spending as a percentage of GNP has slowly grown over those years from 18 percent to a 1986 level of 24 percent of GNP.

Twenty ...