Economic Growth: Blood Suckers v. Free Lunchers

by cactus

Economic Growth: Blood Suckers v. Free Lunchers

Good evening, and welcome to another episode of Comparing Presidents: Tax Burden v. Economic Growth. But looking at things from a Democrat v. Republican perspective seems to be a step too far for some readers, so this time we’ll do something different. For the purpose of this post, I’m going to pretend there are two different parties… the blood suckers and the free lunchers. The blood suckers are those under whom the federal government’s revenue as a percentage of total income increased, and the free lunchers are those under whom the federal’s government revenue as a percentage of total income decreased.

Some housecleaning before we go on… links to all the data plus a handy google spreadsheet are provided below. As always, we compute the annualized growth in each series (real GDP per capita, gov’t revenue / personal income) from the last full year before a President took office to his last full year in office. For those who left office early, if they left in the second half of the year, we consider that to be their last full year in office. Otherwise, we consider the year before they left office to be their last year in office. Finally, due to objections from folks who insist that the Germans saved our economic behinds by bombing Pearl Harbor (and yes, some of the comments I get would make Belushi wince), I’m leaving out Hoover, and only looking at the worst six years of FDR’s term (i.e., only going through ’38).

So here’s what it looks like:

(BTW… for convenience, the numbers you see sitting above each bar are the annualized percentage change in the gov’t collections / personal income, by president)

A few quick notes:

1. Its easy to tell a story with the words “cutting taxes leads to faster growth” but very difficult to make any such story compatible with the graph above.
2. The relationship between changes in the tax burden and growth in real GDP per capita is not one to one… clearly other variables matter too.
3. If you truly believe that peeing in the gas tank is going to improve your mileage, sooner or later you’re going to end up broken down on the side of the road.
4. I’ve written one or another variation of this post for the past four or five weeks. I think its fairly obvious what the relationship between taxes and economic growth isn’t, even if some readers refuse to accept it. I’m tired of rewriting this same #$% post, so its time to move forward.
by cactus

Data sources:

Real GDP per capita – NIPA Table 7.1, line 10

Federal gov’t’s current receipts – NIPA Table 3.2, line 1

Personal Income – NIPA Table 3.2, line 1

The above three BEA spreadsheets, plus my analysis, are all available in this google spreadsheet.