Real Spending, Real Dollars

The “Money Report” section of the April issue of The Atlantic Monthly contains a fascinating comparison between what Americans spent as a society in 1967 and what we spent in 2007.  The facts are sometimes in agreement with popular perception… and sometimes rather wildly at variance with them.

The area where spending has gone up the most is, unsurprisingly, that of health care, and few would dispute that.  In constant dollars, adjusted for inflation, health care costs have gone from 8.1% of spending to 18.0% – more than doubling.  Likewise, the percentage we spend on business services, things like advertising, accounting, legal services, insurance other than for health care, real estate fees, and consulting, has also more than doubled (this is also where those billions in financiers’ bonuses fit in, as well as the  additional costs of such services as tax preparation, various attorney’s fees, and all the money management fees).  Recreation and entertainment spending have also increased by 80%, so whether we want to admit it or not, we’re either pampering ourselves more than we did forty years ago or the entertainment and recreation moguls are charging more for the same things.

In some areas, such as education, housing, and transportation, there’s been little change in the proportion of income we spend.  With the high increase in the cost of higher education, that suggests that spending on primary and secondary education, in real dollar terms, has dropped, and from what I’ve seen in state and local education budgets that’s definitely been the case.

On the other hand, the percentage of our spending going to food and drink has dropped by 40%, even though proportion spent at restaurants has increased by 75%. And the percentage we spend on clothing has dropped by more than 35%, no surprise to me, given the way most people look in public.

But, most surprising to me were the numbers spent on government/taxes.  In 1967, over 18% of income went to government through fees and taxes.  By 2007, that had dropped to 13.2% – a decrease of over 25%.  So… in real dollar terms, government is costing us less of our income today than it did forty years ago.  Somehow… this message hasn’t gotten across to anyone.

Admittedly, most people just look at the dollars, and in nominal dollars, the figures show that government budgets increase every year, but over time, those budgets haven’t increased as much as inflation.  Of course, neither have the earnings of the middle class, but even their earnings have only declined, in real dollars, very slightly – not the 25% real decrease we’ve seen in government spending. Is it any wonder we’re facing a crumbling infrastructure in areas such as highways and bridges, especially when a larger fraction of declining real federal revenues has been devoted to fighting overseas wars?

Of course, I doubt that these numbers, or anything resembling them, will ever show up in the political arena. But I thought some of you ought to know.



5 thoughts on “Real Spending, Real Dollars”

  1. Joe says:

    Caveat: I have not been able to find the article you mention online.

    I’m not sure most people would agree for the simple reason that the tax rates that went down the most were those paid by the richest people in society. Those paid by the vast majority of people have only gone down a few percent, not 25%. The following link shows the amount in 1967 dollars and in 2011 dollars:

    Furthermore, in 1967 most women did not work, or need to. If the husband lost his job, his wife might be able to help out by providing a second income. Now most families have no such slack, since 2 incomes are needed to get by.

    I do agree that parasitical costs have risen dramatically (lawyers, banks, 401ks, payments towards health insurance company profits, etc)… It’s part of the rot causing the US to lose its edge. Fewer american kids become scientists or engineers, instead becoming lawyers, doctors or bankers if they can. Most PhDs in the Sciences are foreign born, as are many many people in the tech industries.

    Elizabeth Warren has an interesting perspective on this topic:

  2. Steve says:

    Thanks Joe, for the Tax Foundation link. I am shocked that historic tax rates have been much higher and more progressive than tax rates since the late 80’s. At some point a person would stop working. I can’t see putting in 100+hour weeks if Uncle Sam starts taking more and more. At what percentage does a person stop pushing themselves?

    1. Joe says:

      There is not much evidence that the tax system is built to encourage hard work. If it were, capital gains taxes would be much higher. Instead one pays a lot less on “working capital” than on one’s own work. Equity is the path to being a millionaire, not hard work.

      My understanding is that increasing taxes on the rich rarely causes them to leave their country. Instead they avoid giving money to the government by paying themselves a lower salary and ploughing more profits back into their company, making it grow, and hoping to reap benefits later. This is good for the economy since it leads to more jobs.

      It’s worth remembering that taxes are much higher in Europe, and particularly in Scandinavia, but people still work hard and build successful companies there (Spotify, Skype, Nokia, Ericsson, Electrolux, Ikea, Maersk, Vestas to name but a few).

  3. Orman says:

    You folks should be happy you’re not paying the amount of taxes we do in Canada! We spend almost 7 months out of 12 of work on taxes. Granted we do have universal heathcare, but we pay dearly for it.

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