Federal Spending and Revenue as a Share of GDP

Think of it this way

It is measuring a household's spending as a percentage of what it earns, rather than in dollars. That way you can see whether the problem is that it spends a lot or earns little.

What is Federal Spending and Revenue as a Share of GDP?

What share of everything the country produces in a year the federal government spends, and what share it collects. It is the same accounting as the per capita chart measured against a different yardstick, and with much more history: the series starts in 1929, so it includes the Depression, World War II and every cycle since.

How to read Federal Spending and Revenue as a Share of GDP

Read the two lines separately before looking at the gap. Revenue has moved within a narrow band for decades despite tax increases and cuts of every kind; spending has a much wider range. Turn on Deficit to see the distance as a single figure. The 1944 peak —more than four out of every ten dollars produced— is the series maximum and serves as a reference for judging any other stretch.

What Federal Spending and Revenue as a Share of GDP means for the market

It is the underlying argument of this entire section, and the one that explains why the problem cannot be fixed by raising taxes. When two lines separate persistently, the difference can only be covered by issuing debt, and issuing permanently requires finding a buyer permanently. That is the source of the pressure on long-term rates and the dependence on foreign buyers. It is not useful for deciding on an entry: it helps you understand why the Treasury cannot stop.

Where the money flows

The circuit is the same as for the per capita accounts: the Treasury pays and that money lands in private accounts; it collects taxes and money leaves them. The only thing that changes is the yardstick. Dividing by GDP instead of by population answers a different question: not how much falls to each person, but what share of everything the country produces in a year passes through the government's hands. It is the yardstick used to judge whether a debt is sustainable, because what pays it is output, not the headcount.

What to watch in Federal Spending and Revenue as a Share of GDP

The two lines coming together. It has happened fourteen times in almost a century, and the last streak was from 1998 to 2001. Compare it with the per capita version: that one is read in pocket dollars and this one as a share of the economy, and when both tell the same story, the conclusion is solid.

Spending returns to the private system what taxes had taken from it. The gap between the two lines is what must also be borrowed.