Thursday, August 15, 2013

Washington Is a Big Redistributor (excerpt)

Federal revenues rose 12.8% y/y in July. They have been boosted by increases in tax rates at the beginning of the year rather than a significant improvement in US economic growth.

Nevertheless, the tax hikes combined with the spending sequester since March 1 are restoring some fiscal discipline in the United States. That’s good news. Over the past 12 months through July, federal receipts rose to a record high of $2.7 trillion while outlays fell to $3.4 trillion, the lowest since October 2010. The 12-month federal deficit is down to $723 billion from a record high of $1.5 trillion during February 2010.

In a new publication, we compare federal government spending on goods and services, as reported in the GDP accounts, to total federal outlays as reported in the Monthly Treasury Statement of Receipts and Outlays. The difference between the two series is spending on income redistribution through entitlement programs.

During the four quarters through Q2-2013, federal outlays totaled $3.4 trillion, with $1.3 trillion attributable to spending on goods and services and $2.1 trillion attributable to entitlement outlays. Prior to the expansion of the social welfare state under President Johnson’s Great Society program, entitlements accounted for less than 10% of government spending. They are now up to about 65%.

Today's Morning Briefing: Private & Public Revenues. (1) Global oil demand at record high, but growing very slowly. (2) Oil demand up in emerging economies, down in advanced ones. (3) S&P 500 revenues growing slowly too, at 3.4% y/y. (4) US business sales up 4.9% y/y at new high. (5) Oil demand edging up in Germany and France. (6) Europe’s recession may be over, but recovery likely to be weak. (7) Could it be that austerity works? (8) Fiscal discipline in US narrowing the federal budget deficit significantly. (9) Federal government redistributing $2.1 trillion of income. (10) The US housing recovery is fragile. (11) Focus on underweight-rated S&P 500 Energy. (More for subscribers.)

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