Of course the deficit is growing beyond expectations: median household income is dropping, so revenues are dropping.
The iron law of U.S. Federal Taxation:
Federal Tax Receipts = 311,420.423287 * (Median Household Income)^1.463074
(with R^2 = 0.995840). A little regression analysis by Political Calculations using annual data from the 1967 to 2010 gave that model. Think about the changes in tax policy and economic conditions over that time, and 99.584% of the variation in Federal Tax Receipts can be explained by medial household income.
“Of course the deficit is growing beyond expectations: median household income is dropping, so revenues are dropping.”
I read recently tax receipts typically average about 19% of GDP while federal expenditures run 20-21% of GDP. Under Obama spending is approaching 25% of GDP and receipts have dropped to about 15.5% of GDP. The trillion dollar annual deficits are due to both increased spending and lower tax collections.
We know the government has been understating employment. We know that unemployed people who find jobs in this economy are accepting jobs at 2/3 the pay of the job they lost. We know that many people are making do with low paid/no benefit part time jobs because they cannot find full time employment. We also know people in their late 50’s and early 60’s who lose their jobs are retiring early. All of the above contribute to lower tax revenue.
Plus, disposable income for the average American has declined for a decade. Wage increases are not keeping up with real inflation. Just as the government is understating unemployment it is understating the inflation rate.
Opening our markets to imports from third world nations is having the predictable effect. US workers are now competing in a global marketplace with 10 cent per hour labor in Bangladesh, China and Burma. Competition is driving wages and the standard of living down in the US while raising it in the nations that trade with us. Add crushing government regulation of small business, and the crowding out of private market capital available to fund business expansion by government borrowing and you have declining economic activity and tax receipts.
The day of reckoning will be accelerated as Obama doubles down on his regulatory and redistribution policies in the second half of his administration. My only question is how he will lay the blame on the Republicans when the collapse occurs. No doubt that is on Boehner’s mind as well given his apparent willingness to compromise.