To my way of thinking, looking at government debt as a percentage of GDP is the best way to get a sense of the nations public debt burden. If you look at it in absolute terms, you just see an exponential curve with flatter spot here and a step spot there.
In contrast, the graph above tells a more vivid story. We see that public debt as a % of GDP was actually shrinking through the late 1960s and 1970s. You can clearly see that it rose dramatically during the Reagan-Bush41 years before begin to recede in the Clinton administration (with proper credit also due to Gingrich led House Republicans). The trend reversed and debt grew a bit under Bush43 due to the Bush tax cuts, the 2001 recession and the wars in Afghanistan and Iraq.
However, all these changes pale in comparison to the steep climb as a result of the Great Recession. In looking at this steep rise it is important to note that the recession had a double whammy effect on the Debt/GDP ratio. The recession expanded the numerator as government expenditures increased and receipts fell (as will be discussed below). It also shrunk the denominator.
Whatever the causes, we have entered a new era of US government debt burden, and we are going to have to do something about it sooner or later. That something logically entails some combination of GDP growth (to shrink the denominator), and cut to federal spending and/or increases in federal revenue (to shrink the numerator). Since GDP growth is not directly controlled by government policy (though it nay be effected by it), policy makers must focus there attention on reveune and expenditures, which leads to the next graph.
I have used Federal Reserve data on current federal expebditures and receipts (along with data on US GDP) to produce the graph below, which shows current expenditures (blue line) and receipts (red line) both as a percentage of US GDP from 1929 to 2012.
Clearly, expenditures have been running higher than receipts since 1950, but we knew that. We can also see that government expenditures moved from the 16-17% of GDP range into the 20-23% of GDP range in the 1960s (presumably due to the Vietnam War ad Great Society programs) and then edged up more to the 23% mark during the Reagan years (presumably due to higher military spending and lack of compromise on social spending). What is perhaps more interesting is the size in the decline of federal expenditures versus GDP during the Clinton-Gingrich years which brought federal spending as a % GDP down to the lowest level since 1965. While the 2001 recession and spending on the wars edged federal expenditure back up to the 20% (or 1968) level, they held there until the beginning of the Great Recession. Obviously, expenditures/GDP jumped in the Great Recession, again with part of the apparent increase due to a precipitous decrease in GDP.
However, I think the graph of federal receipts/GDP tells a more interesting story, or at least one that is more counter-conventional wisdom. Federal receipts as a % of GDP have been remarkably stable since 1950, staying within the 15-20% range. While they edged up a couple percentage points in the late 1970s and 1980 and peaked in the 1990s, they have receded due to the Bush tax cuts and the effect of two recessions. Indeed, in 2012 federal receipts/GDP were at their lowest level since the mid 1970s.
This factoid runs counter to the convention wisdom that taxes in the US have increased over time. While individual tax rates may have risen and fallen, the percentage of national income siphoned off by the Federal government hasn't changed much over the long run. Of course, this runs counter to most individual experiences since the personal income of most Americans trends upwards throughout most of their life. This exposes them to higher marginal tax rates as they climb through the tax brackets.
If we put this personal experience aside, we can see that our public debt is not just the result of increases in spending, but also of a conspicuous lack of corresponding increases in overall taxes. In short, the problem is not that we have had tax-and-spend policies, but that we have had same-tax-and-more-spending policies. Therefore, when dealing with government debt, one would consider revenue increases to be on the table with spending cuts.
Alas, this is not the case. Despite the objective evidence, I doubt any politician in either major party would get far by arguing that Federal taxes (not matter how measured) have not increased over the past decades. The GOP is wedded to the reverse narrative and Democrats tacitly concede the point to the Republicans by trying to employ a narrative of fairness impaired by inequality.
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