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Sunday, February 13, 2011

Number Crunching - Federal Revenues By Source

I finally broke down and have been doing some of my own fact finding/ number crunching concerning the state of the economy, government spending, yada, yada. There are just way too many conflicting opinions out there, and everybody seems to be heavily invested in their own view of the world. I can promise you my blogs on this are going to be incredibly boring; nevertheless, I am posting my work as I do it in case anyone is interested. Also, I am hoping people point out errors in assumptions and general spreadsheet goofs - to which I am not immune.

All I want to know, is do I have to save every fricken penny we earn and stock up on food, guns and ammo or can I do some shopping, go on vacation, and generally enjoy life. Is that too much to ask? On the one hand, people are making a pretty good case for possible hyper-inflation, (Very Bad) and then my daughter reports back that her Macro-Econ professor at Columbia says no hyper-inflation and the guy on the radio is saying he thinks the DOW is undervalued and should be at 15,000 and I have to wonder whether these people are all looking at the same data. So, here goes nothing. I tentatively promise that if I try to make money off of my fabulous research here, I will let you know.

So here is what I am trying to figure out. Are we in such a precarious situation financially such that we are going to go spiraling off into a scenario of hyper-inflation, and do I need to buy a wheel barrel or 2 just to carry enough money to buy groceries. (If this happens, the guns and ammo reserves are mighty useful, because I guarantee that all Hell will have broken loose.)

Whether or not this happens, it seems to me, is dependent on 1) the overall state of the economy 2) the political will to tighten one's belt, 3) the actual state of Federal Finances 4) what those up-and-coming Social Security obligations really amount to, ditto for Medicare and 5) the prevailing interest rate the Federal Government (FG) faces when it rolls over debt obligations and finally, 6) just what the heck is the Federal Reserve really up to Mr. Berquacky? For purposes of this analysis I am ignoring the mess the States are in for the simple reason that they do not have a Berquacky at their disposal. I.E. can't print money or otherwise influence overall money supply.

Table E-2 Revenues by Major Source, 1971 to 2010 in Billions of Dollars - (Federal Revenues - how much the FG gets from tax payers - numbers in pink reflect changes in year to year values.)
So Table 1: Source CBO from a file called historicalTables(1).xls and a few others. Stuff in pink and green or any other color not black or white, I have added.

Here are a few points I found notable. The effects of the recession are clearly visible starting in 2008 as we see FG receipts of both personal and corporate income taxes decline from their levels in 2007. The situation worsens greatly in 2009 as both Personal Income Taxes (PIT) and Corporate Income Taxes (CIT) plunge.

Notice what happens with Social Insurance Taxes (SIT) - the overall receipts of (I am assuming these are SS and Medicare payroll taxes) SIT drop for the first time since at least 1971! During every downturn over the last 40 odd years, SIT never actually decreased year over year until 2009. That seems like it is significant.

Next I took the amount of the decrease in SIT and calculated some boundary numbers for jobs lost during this period which I show in this chart:
Some very rough estimates of implied job loss of decrease in FG SIT receipts.
To do this, I basically said, SIT is about 15.3% of payroll, where individual salary amount subject to the 15.3% maxes out at $106,800 - what is the number of implied jobs lost if I assume all jobs lost were at least $106,800? That gave me my "lower bound" of 2.2 million lost jobs. Then I assumed everybody made the median income which gave me 5.2 million jobs lost, and finally, I assumed everybody earned only the Federal Minimum Wage which gave me the absurd number of 16.9 million jobs lost. (If anybody tries to tell you there were more than 16.9 million jobs lost, they are FOS.) I found a CNN article reporting around 5.7 million jobs lost - so if they are to be trusted, we can tentatively conclude that the bulk of the lost jobs were in the salary range of the median income.

Something else that I need to check into... did anybody say that the economy grew in 2010? Because I do not see how that is remotely possible given the $26 Billion decline in SIT during 2010. We all know those taxes come straight off our paychecks - we don't even get the chance to try and not pay it - so if that drops by $26 Billion in 2010 that means that the bulk of the jobs lost happened in or are first fully reflected in 2010 numbers. Can anyone think of a reason why that is not the case? If so, please explain and provide back-up to prove your point.

I am working on a table showing FG interest expense in relation to various things which has revealed a few interesting little noteworthies. I need to find a good time series of GDP on the CBO site and a few other things I can't remember at the moment, but it should be ready soon.

The hard part is going to be figuring out just what really happens, step by mundane step, when the Fed does its thing. Any insight regarding such would be most welcome.

Ta for now.

RH

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