11/14/12 11:18 PM – Federal Spending vs. Revenue

Below is a very useful table of federal spending and revenue. For now, just look at 2012 – the bottom row.
The main point is that we are borrowing 88% of the cost of running the government in 2012. The total cost of every government department, including defense is listed as discretionary spending below. The deficit is at the far right. Simple division gives the 88% figure.
The lion’s share of federal tax revenue (84%) goes to entitlement spending which includes Medicare, Medicaid and Social Security. Given that the largest program, Medicare, tends to grow at 10%/year you should think about your taxes growing at somewhere between 5%-10%/year, just for entitlement spending, i.e. transfer payments, not the government itself.
This has got to have a negative impact on the future economic health and stock market performance of the U.S. That’s because higher taxes reduce businesses’ and citizens’ ability to spend and thus grow the economy. Until budget negotiations address entitlement spending head-on with a serious attempt at curbing its growth, Washington is missing the point. The result is likely a lower return on stock market investing due to ever-rising taxes creating an ever-greater drag on the economy.

Click to enlarge.