The annual federal deficit has gone down, but the economy is still growing?
Stop the presses!
That’s the reaction of US citizens and financial pundits who still think that Keynesian economics – the theory that government spending is vital to economic recovery – is valid.
How Much has the Federal Deficit Really Deflated?
During the past six years of economic recovery, 12-month federal tax collections have increased more than a trillion dollars from $2.18 to $3.21 trillion, up +47%, mainly as a result of the economic rebound, as slow as it has been.
Federal spending, on the other hand?
- Spending relative to GDP has dropped to 20.3% from 24.4%.
- Revenue growth relative to GDP has risen to 18.1% from 14.2%.
Let’s all cheer for a gridlocked Congress. As Mark Twain said, “No man’s life, liberty, or property is safe while the legislature is in session.”
During the past year, the federal deficit shrank at an unprecedented rate in the post-world war era: it went from 10.2% in 2009 to only 2.2% of GDP today.
(Above statistics courtesy of Calafia Beach Pundit.)
The Best News We’ve Heard in a While
Now that the government is spending less, the expected burden of taxation will continue to be lower.
The economy has proven that it can stand on its own two feet and that private spending is far more effective than any government stimulus program.
With these statistics, gathered during a time when most adherents of Keynesian economics would probably have predicted another severe recession, we finally have the impressive facts to prove just how bad excessive government spending is for the economy!
What Does All this Mean for You?
So the economy is capable of recovering without help from the government. What does that mean for you besides less pressure to increase your taxes?
It means that you can feel more confident, which is the first step to achieving peace of mind about the financial life you’ll get to enjoy and the financial legacy you’ll get to leave behind.
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