Analysis of United States Revenues and Expenditures from 1960-2015

ECO4504

Public Sector Economics Paper

By James Skinner

Skinner, James

11-19-2014

By examining government revenues and expenditures in the last 55 years, I was able to

spot trends and patterns in the economy. I gathered my data by using resources on the internet

and examining the expenditure and revenue charts for the years 1960, 1970, 1980, 1990, 2000,

2010, and 2015. Then I was able to look at the charts and determine whether or not the

government was making good decisions with their spending and profiting.

YEAR REVENUES EXPENDITURES PROFIT

1960 $146 Billion $151 Billion -$5 Billion




2000 $3676 Billion $3250 Billion +$426 Billion



It is astounding how quickly the United States economy grew, considering the revenue is

41.1 times as large now as it was back in 1960. On the other side, the expenditures of the

government are now 43.5 times as large as they were in 1960.

1960

Expenditures: $151 Billion

In 1960, the US Government expenditures equaled $151 billion total. Out of this, the

most spending the government did was on defense, which was 35 percent of the total. The

second highest amount was on education, which was 13 percent of the total. Together, almost

half of the budget was spent on these two services.

The defense budget was quite modest, considering that the Vietnam War was going on

and the United States was sending their soldiers overseas to fight. $52.85 billion is a large

amount of money, but it is not that high compared to the amount spent on military currently.

The second highest amount of money was spent on education, which cost the United

States about $19.6 billion. Considering the evolution of education during this time, that is not

very much. The government was expanding education so that anyone that wanted to go to school

was able to.

Revenues: $146 Billion

The total United States Government revenues in 1960 were about $146 Billion, which

meant that there was a loss of around $5 billion in 1960. Out of this total, 45 percent of revenue

was from income taxes, 32 percent was from ad valorem taxes, and 13 percent was from social

insurance tax. This means that 90 percent of the total government revenue in 1960 was from tax,

leaving only 10 percent left for all other revenues.

45 percent of the United States revenue came from income tax in 1960, which is about

$65.7 billion. Considering that war was going on in this time, the government was trying to raise

their revenue levels to match the cost of defense.

32 percent of the United States revenue came from ad valorem taxes in 1960, which is

about $46.7 billion in revenue. The government was once again trying to raise revenues to match

their spending.

13 percent of the United States revenue came from social insurance tax in 1960, which is

about $19 billion in revenue. This is a surprisingly low number, considering it covers

government programs like Social Security.

1970

Expenditures: $322 billion

In 1970, the total amount spent by the United States government was about $322 billion.

Out of this, 29 percent of it went to pay for defense and 18 percent went towards education.

The United States spent the largest amount of money on defense in 1970, which was 29

percent of its total spending budget. This was about $93.4 billion dollars, which was nearly twice

as much as it was just a decade ago. The most likely cause for this was the fact that the Vietnam

War was still going on, and the country needed to fund its military.

The second largest amount of money the government spent in 1970 was on education,

which was 18 percent of the total spending budget. This was about $57.96 billion, which was

almost 3 times as large as it was in 1960. The government was trying to invest in the population

so they would make more money in the future.

Revenues: $321 billion

The total United States Government revenue for 1970 was around $321 billion, which

was an increase of $175 billion since 1960. Income tax accounted for 43 percent of this total, ad

valorem taxes were 29 percent of it, and social insurance tax was 17 percent. This means that 89

percent of all government revenue in 1970 came from tax, leaving only 11 percent for other

revenue streams.

Income tax accounted for 43 percent of the total revenue for the United States, which is

about $138 billion. This number is over twice as much as it was ten years ago, however the

population only increased by 13 percent over this period of time.

Ad valorem taxes accounted for 29 percent of the total revenue for the United States,

which is about $93.1 billion. This number increased at about the same rate as income tax, and is

a little less than twice as large as it was in 1960.

Social insurance tax accounted for 17 percent of the total revenue for the United States,

which is about $54.6 billion. This number is surprisingly almost 3 times as large as it was in

1960. The cause for this was most likely the introduction of the Medicare program in 1966 and

veterans needing healthcare.

1980


In 1980, the United States spent a total of $940 billion, which was nearly three times

larger than it was previously in 1970. Out of this budget, 18 percent was spent on defense, 16

percent was spent on education, and 16 percent was spent on pensions.

Defense was once again the most expensive part of our budget in 1980, and it was 18

percent of the total expenditures. This was about $169.2 billion, which was 1.8 times larger than

it was in ten years ago in 1970. This was most likely because the threat of war was still there, and

the government wanted to be prepared.

Education was the second most expensive part of the United States government in 1980,

costing us 16 percent of our total expenditures. This was about $150.4 billion in costs, which was

nearly 3 times as large as it was back in 1970. The United States was investing in the population

by letting them get an education so they could earn more and pay more in taxes.

The third most expensive item on the United States budget in 1980 was pensions, costing

us 16 percent of our total expenditures. This was about $150.4 billion in costs, which was almost

5 times as large as it was in 1970. Most likely the cause of this was retiring soldiers claiming

their money. Since the United States has such a large military, it was expensive to pay everyone

their money.


For 1980, total revenue for the United States government was about $886 billion. From

this total, 41 percent of it came from income taxes, 23 percent from social insurance tax, and 23

percent came from ad valorem taxes. Taxes were once again the main source of government

revenue, accounting for 87 percent of total revenue for the United States, which leaves only 13

percent for all other sources.

Income taxes were the main source of revenue for the United States, accounting for 41

percent of the total. This is around $363.3 billion, which is over 2.5 times larger than it was in

1970. This is astounding considering the population only grew about 11 percent over this period

of time.

Social insurance tax was the second largest source of revenue, accounting for 23 percent

of the total. This is around $203.8 billion, which is 3.7 times larger than it was in 1970. The

cause for this was most likely the evolution of Medicare and Social Security.

Ad valorem taxes were tied with social insurance tax as the second largest source of

revenue, accounting for 23 percent of the total. This is around $203.8 billion, which is a little

over twice as large as it was back in 1970.

1990


In 1990, the United States spent a total of $2089 billion, or about $2.1 trillion, which was

two times larger than it was previously in 1980. Out of this budget, 16 percent was spent on

defense, 15 percent was spent on education, and 15 percent was spent on pensions.

Defense was again the most expensive item on the United States spending budget in

1990, costing us 16 percent of our total expenditures. This was about $334.2 billion, which was

about twice as much as it was back in 1980. The most likely cause of this was the Gulf War

going on in the Middle East.

Education was the second most expensive item on the United States spending budget in

1990, costing us 15 percent of our total expenditures. This was about $313.4 billion, which was

over twice as much as it was in 1980. For the same reason as before, the government was

investing in the American citizens to increase our income so they could collect more taxes.

The third most expensive item on the United States spending budget in 1990 was

pensions, costing us 15 percent of our total expenditures. This was about $313.4 billion, which

was over twice as much as it was in 1980. With the increasing number of retiring soldiers and

other workers, the government had to spend more to keep paying everyone their money.


In 1990, the total revenue for the United States government was $1928 billion, or about

$1.93 trillion. From this total, 36 percent came from income taxes, 26 came from social

insurance tax, and 23 percent came from ad valorem taxes. Overall, taxes accounted for 85

percent of all revenue, leaving only 15 percent for all other sources.

Income taxes were the main source of revenue for the United States in 1990, bringing in

36 percent of total revenue. This is about $694.1 billion, which is almost 2 times larger than it

was in 1980. Surprisingly, the population only grew 9.78 percent from 1980 to 1990, meaning

the population as a whole is making more money.

Social insurance tax is now the second largest source of revenue for the United States,

bringing in 26 percent of total revenue. This is about $501.3 billion in revenue, which is almost a

2.5 times increase since 1980. Once again, the cause of this is likely the popularity of Social

Security and Medicare during this time.

Ad valorem taxes are the third largest source of revenue for the United States in 1990,

bringing in 23 percent of total revenue. This is about $443.4 billion in revenue, which is about

2.2 times larger than it was in 1980.

2000

Expenditures: $3250

In 2000, the total spending budget for the United States was $3250 billion, or $3.25

trillion, which is about 1.6 times larger than it was in 1990. From this budget, education

accounted for 17 percent, pensions accounted for 17 percent, and health care accounted for 16

percent of our spending.

For the first time, education was the most expensive item on our spending budget, costing

us 17 percent of our total expenditures. This was $552.5 billion, which was about 1.8 times more

than we spent on it back in 1990. The government could see that investing in the citizens by

providing them with education was raising the amount they earned back in income tax, so they

decided to spend even more this year.

Pensions were the second most expensive item on our spending budget, costing us 17

percent of our total expenditures. This was $552.5 billion, which was 1.8 times larger than it was

back in 1990. This value was rising at the same rate as education, probably because people were

going to school at the same rate that people were retiring.

Health care was the third most expensive item on our spending budget, costing us 16

percent of our total expenditures. This was $520 billion, which was 2.3 times as large as it was

back in 1990. This was likely because of the increase in senior citizens that needed health care.


In the year 2000, United States government revenues totaled $3676 billion, or around

$3.7 trillion. Out of this, 40 percent came from income taxes, 26 percent from social insurance

tax, and 20 percent came from ad valorem taxes. This means that 86 percent of all government

revenue came from taxes, leaving only 14 percent for other revenue streams.

In 2000, income taxes accounted for 40 percent of the total revenue for the United States,

which is about $1470.4 billion or $1.47 trillion in revenue. This is over twice as much as it was

in 1990. The population growth from 1990 to 2000 was only about 13.2 percent, so the United

States citizens are making more and more money each year.

Social insurance tax was the second highest earner for the United States, bringing in 26

percent of the total revenue. This is about $955.8 billion in revenue, which is 1.9 times larger

than it was in 1990.

The third highest earner for the United States was ad valorem tax, bringing in 20 percent

of the total revenue. This is about $735.2 billion, which is 1.6 times larger than it was ten years

ago in 1990. What most likely caused this was the decrease in production of goods, and

increased activity in financial markets.

2010



trillion, which is about 1.8 times larger than it was in 2000. From this budget, health care

accounted for 18 percent, pensions accounted for 16 percent, and education accounted for 15


For the first time, health care was the most expensive item on our spending budget,

costing us 18 percent of our total expenditures. This was $1074.1 billion, or $1.07 trillion which

was 2 times more than we spent on it back in 2000. The increasing amount of senior citizens in

America was requiring the government to spend more on health care. Another factor could be the

cost of health care increasing.


percent of our total expenditures. This was $954.7 billion, which was 1.7 times larger than it was

back in 2000.

Education was the third most expensive item on our spending budget, costing us 15

percent of our total expenditures. This was $895.1 billion, which was 1.6 times as large as it was

back in 2000. This was likely health care and pensions were more important to the government at

the time.


In 2010, the United States government totaled $4708 billion, or around $4.71 trillion in

revenues. Income taxes accounted for 30 percent of this total, social insurance tax was 29

percent, and ad valorem taxes were 23 percent. Taxes were the main source of government

revenue once again, this year at 82 percent of the total revenue.

Income taxes accounted for only 30 percent in 2010, which is about $1412.4 billion or

$1.4 trillion in total revenue for the United States. This is surprisingly a decrease since 2000 of

about $58 billion. This is most likely caused by the recession of 2008, leaving many Americans

without jobs or any source of income.

Social insurance tax was the second highest earner for the United States, bringing in 29

percent in 2010. This is about $1365.3 billion, or $1.37 trillion in total revenues, which was

about 1.43 times larger than it was in 2000. The most likely cause of this was the increase of

senior citizens in America and the need to replenish the Social Security fund for the future use of

it.

Ad valorem tax was the third highest earner for the United States, bringing in 23 percent

of total revenue. This is about $1082.8 billion, or $1.08 trillion in revenue, which was 1.47 times

larger than it was in 2000.

2015



trillion, which is only 1.1 times larger than it was in 2010. From this budget, health care

accounted for 20 percent, pensions accounted for 19 percent, and education accounted for 16


Once again, health care was the most expensive item on our spending budget, costing us

20 percent of our total expenditures. This was $1312.8 billion, or $1.3 trillion which was 1.22

times more than we spent on it back in 2010. This is probably because the government was

attempting to cut costs while still keeping health care as the main priority.


percent of our total expenditures. This was $1247.2 billion, or $1.25 trillion, which was 1.3 times

larger than it was back in 2010.

Education was the third most expensive item on our spending budget, costing us 16

percent of our total expenditures. This was $1050.2 billion, or $1.05 trillion, which was 1.17

times as large as it was back in 2010. The government had already spent so much money on

education in the past, they were most likely attempting to slow growth so they could fix

problems that the recession caused in 2008.


The total expected United States government revenue in 2015 is $6000 billion, or $6

trillion. From this, 40 percent is coming from income taxes, 24 percent from social insurance tax,

and 21 percent from ad valorem tax. Taxes account for 85 percent of all government revenue,

leaving only 15 percent for all other sources of revenue.

Income taxes accounted for 40 percent of total revenue for the United States in 2015,

which is about $2400 billion, or $2.4 trillion in revenue. This is about 1.7 times larger than it was

in 2010. The most likely cause of this is the increase in high paying jobs, college graduates, and

the decrease in the unemployment rate. With more jobs available and more citizens having

steady income, the government is able to make more revenue from income tax.

Social insurance tax accounted for 24 percent of the total revenue for the United States in

2015. This is about $1440 billion, or $1.4 trillion in revenues. Revenue from social insurance tax

in 2015 is only slightly larger than the amount gained in 2010. The most likely cause of this is

the decrease in Medicare customers after the introduction of Obamacare.

Ad valorem tax accounted for 21 percent of the total revenue for the United States in

2015. This is about $1260 billion, or $1.26 trillion in revenues. This is only about 1.16 times

larger than it was in 2010, most likely because of the decrease in homeowners after the recession

in 2008.

Changes to Government Spending:

The government had the right idea with their spending, they just did not balance their

money properly and they let the economy grow too fast and it absorbed too much debt.

Education is important when it comes to increasing how much income a person makes, so

making education available to everyone was a good idea. However, the amount they were

spending was too much and they were putting the country in debt because of it. There should

have been more attention on the opportunity cost of that money. By granting people with a better

education, these people were likely to draw pensions in the future. This is exactly what

happened, in 2015 pensions accounted for 19 percent of our entire spending budget.

So not only did the government spend money on education for people to join the work

force, they spent money on pensions for people leaving the work force. With the rising

population of senior citizens and retiring workers, the government does not have the funds to pay

all of the money out. The government should not produce social insurance, it should be produced

by companies. It would force the companies to give back to its employees, and then people

would have an incentive to find a job so they could get those benefits. If they get benefits given

to them by the government, then they have no incentive to find a job. But if the companies are

required to give out the benefits, people will have the incentive they need to go join the work

force. This would also benefit the government because they would not have to give out as many

benefits to unemployed or retired workers.

The government should also quit spending so much on health care, since the marginal

cost is not zero it does not make sense that they are involved in it. Health care would be more

available to people if companies were required to provide insurance to their workers. This would

benefit everyone because the workers would have the insurance they need, the government

would have extra money to spend on more profitable ventures, and the companies would protect

their employees so there would not be as much liability on the company.

Changes to Government Revenues:

The government makes the majority of their money in only three ways, through income

taxes, ad valorem taxes, and social insurance tax. All of these things combined make up about 70

to 80 percent of all government revenues. While it may seem like an efficient system, they are

essentially putting their money supply into the hands of the job market. There are many changes

they should make to this system if they want it to work more efficiently.

The first thing the government should consider is how they want to give people an

incentive to join the labor market. High income tax rates are not the way to do that. When people

know that their hard-earned money is going to be taken away from them, they have less incentive

to work for it. The government should switch to a system that goes away from income taxes and

goes towards ad valorem taxes. This will cause people to have more incentive to work, since they

will not be taxed on their income, but rather on their added value each year.

Unemployment benefits and social insurances are another way the government is

preventing the economy from flourishing. With social security and unemployment in place, it is

easy for people to become comfortable with not working. They will have an incentive to stay

away from work if they know that they can make just as much money sitting on their couch at

home. If the government were to switch to a system that gave people benefits for working and

not using social security, then it would give people the incentive they need to go work.

Ad valorem tax is the ideal way the government should make the majority of their

money. If people were just required to pay a tax on the value of things they own, like houses,

then they would have an incentive to work each year so they could pay that tax and they could

keep the rest of their money. It is really all about incentive in this situation, people will only

work if they have a reason to.

Overall:

Overall, the government needs to quit spending money on things that will not help it

make money. Health care will not make the government money, defense will not make the

government money, and pensions will not make the government money. Education is a good

investment, as it allows American citizens to advance in their careers and make more money.

The government also needs to quit putting so much faith into income tax, considering

how volatile the job market is. In the case of the recession, the government was not able to help

the American citizens because all of their money depended on the citizens. The government

should work harder to raise ad valorem tax rates and drop income tax rates. This will give people

an incentive to join the work force and will benefit everyone. They should also quit taxing social

insurance, and put that liability on American companies. This will give everyone in the

workforce access to health care, which in turn will save the government money. Then they can

use that money for more profitable ventures.

Sources:

Total Spending Charts: www.usgovernmentspending.com

Total Revenue Charts: www.usgovernmentrevenue.com

United States Population Data: http://www.censusscope.org/us/chart_popl.html

Analysis of United States Revenues and Expenditures from 1960-2015

Economy & Finance

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