Tag Archives: fiscal cliff

What Heritage does not make clear about federal spending

A popular chart by the conservative think tank The Heritage Foundation is shared by thousands of people on Facebook every now and then. The chart is titled “Federal Spending Grew Nearly 12 Times Faster than Median Income.” The problem with this chart is that it does not paint a nuanced picture of how much the federal spending in the United States actually has grown. This is because one of the two plots is an aggregate number (total federal spending in dollars) and the other plot is a median value (median household income).

The fact that total federal spending has grown twelve times faster than median household income since 1970 is quite irrelevant if we do not take into account the growth in the number of households. If the number of households had grown faster than federal spending, the size of the federal government would actually have shrunk (Sweden has one of the largest public expenditures per capita in the world, but imagine how small the American federal government would be if its total federal spending equaled that of Sweden). So what did the household growth in America look like?

more people, more spending

As can be seen, federal spending grew faster than the number of households. But the number of households grew substantially, and this need to be deducted from the federal spending curve in the Heritage chart if a sensible comparison is to be made.

A caveat to be mentioned before showing the next graph is that it has not been possible to exactly replicate the numbers used by The Heritage Foundation. The calculations used here reaches the same number for federal spending of $3.6 trillion for 2010, but while Heritage estimates that the inflation-adjusted federal spending in 1970 was $926 billion, the number used here is $1.1 trillion. Similarly, both estimate median household income to be about $51,000 in 2010, but this blog (which copied numbers straight from the referred U.S Census Bureau report) uses a much greater number ($45,146 compared to $41,358) for 1970. So The Heritage Foundation finds that both federal spending and median income has grown at a faster rate than what this blog estimates. It is not clear from their chart which inflation-adjusted numbers they used or what price index they used to adjust for inflation, but overall this should not make too much of a difference. The general tendencies will still be the same. Especially since they find greater growth both in federal spending and in income.

When using federal spending per household instead of total federal spending, the graph looks very different. Here is a comparison to mean household income (which might better illustrates tax-paying abilities than median income). It turns out that federal spending still has grown considerably – but much less than what the Heritage chart shows.

growing government

So while The Heritage Foundation is correct that federal spending has grown quite rapidly – also in per-capita terms – the magnitude is much smaller than what their chart shows. And this would be the same case if one used their exact numbers as well, simply because the number of households has grown at a fast pace. Another measure of federal spending that might add some perspective to the debate on this issue is federal spending as a fraction of GDP.

big government

The chart made by The Heritage Foundation is often referred to as a long-term trend, and one of the main reasons why the United States has piled up so much debt. But this argument seems too simplified. In terms of share of GDP, there is no trend. Federal spending was actually lower in 2008 than in 1975, and lower in 2001 than in 1970.

Now, there are still good reasons to cut federal spending, but it is hard to make an argument that federal spending has grown at an explosive rate compared to income.

Simon Hedlin

Good deal, bad deal?

Conservatives have yet to decide whether the bipartisan tax bill was a Republican win or loss:

Grover Norquist: “Every R voting for Senate bill is cutting taxes and keeping his/her pledge.”

The Heritage Foundation: “[T]he bipartisan deal will actually raise taxes on the vast majority of American workers.”

Dave Camp (R-Mich): “[The bill] is the largest tax cut in American history.”

Kevin Glass: “77% of Americans Will Pay Higher Taxes.”

Tom Cole (R-OK): “We didn’t get everything we wanted, but when you can make 85% of the Bush Tax Cuts secure for 98% of the American people, give everybody rate certainty, and basically take the revenue piece off the table in our negotiations going forward, we ought to take this deal right now.”

Stephen Dinan and Sean Lengell: “The bill is a tremendous victory for President Obama, who won almost everything he sought in the deal /…/”

William Kristol: “And politically, Republicans are escaping with a better outcome than they might have expected, and President Obama has gotten relatively little at his moment of greatest strength.”

Charles Gasparino: “[Obamas is] enacting the largest tax hike this country has seen in decades /…/”

Christopher Ruddy: “First, most of the Bush tax cuts are not only renewed but are made permanent. The increase in the threshold from $250,000 to $400,000 for tax increases is a step in the right direction, and will certainly cover most working Americans.”

Charles Krauthammer: “[The deal is] a complete rout by the Democrats. There are a lot of conservatives in the Republican caucus in the House who hate the bill for good reason. This is a complete surrender on everything.”

Paul Ryan (R-Wis): “I joined my colleagues in the House to protect as many Americans as possible from a tax increase. We also provided certainty by making the lower tax rates permanent.”

The Wall Street Journal: “The Senate-White House compromise grudgingly passed by the House is a Beltway classic: the biggest tax increase in 20 years in return for spending increases /…/”