The Whole Pie (3 of 6)

So yesterday we provided this chart:

To show that when we compare the money the Federal Government spends every year to all wages paid by all businesses, it would take an income tax of more than 75% to fund the Federal dole -- but we also admitted that "all wages" is not the whole of our GDP.

You can find the long-form explanation of what GDP is over at Wikipedia if you have that kind of time, but here's the short version.  GDP is the market value of all officially recognized final goods and services produced within a country in a given period of time (usually one year).  The basic calculation is this:

GDP = private consumption + gross investment + government spending + (exports − imports)

And they say that the GDP ultimately equals Gross Domestic Income. So it might be said that the right comparison to find out the tax burden to pay all the Government's bills would be to compare the Federal Expenditures to GDP/GDI.  If we do that, we get this:

Which looks a lot better, yes?  $ 3.598 Trillion is only 23.48% of $ 15.320 Trillion, and therefore we just need to tax everything at about 24% to get what the Federal Government needs to fund the continuing operations of all things in the current scheme.  And let's face it: right now we only collect about 18.5% in taxes, so the math seems to turn out in favor of the folks who say it's all just fine, we just have to get to a fair share.

Here's the Problem:

As of 2011, All the existing debt of the Federal Government plus all the annual expenses is greater than the GDP/GDI of our entire nation.  That means if you spent all the GDI -- every dollar taken in in trade either as wages or as payment (not just the profit) -- on Federal debt or expenses, you would still have $2.3 trillion which is uncovered -- and you will have spent every nickle of the value in our whole economy for the whole year on things which aren't leaving any economy behind.

The size of the problem is an economy-sized problem.

More tomorrow.


Nash Equilibrium said...

Waiting to see what tomorrow's post is, but typically the rejoinder to these facts is that commonly, families may have debt levels greater than family income if one includes mortgages, consumer debt such as car loans or leases, and credit card debt. So, all is well but the trend is disconcerting. I'm not saying I buy that argument, I'm saying that is the typical argument. The main flaw I see is that while a family may have high debt levels, (a) it does not generally strengthen their situation, (b) the majority of the debt is offset by an appreciating asset such as a house (unlike govenment debt, which is more like credit card debt, securing nothing) (c) government debt is continually rising, and could get to the point that it becomes unwieldy such as we now see in Mediterranean Europe.

I like this series and I hope you address some of the above topics in future posts. Thanks.

FX Turk said...

I should just let you write these, Nash. You see where I am going.

Nash Equilibrium said...

chuckle. That wasn't my intention, but... chuckle.

Nash Equilibrium said...

I'd bet you are going to look at this in a way that will surprise everyone, if I know you.