- [Instructor] Now, let's look at a picture,
that summarizes a lot of information
about U.S. governmental tax policy for the past 50 years.
This is U.S. government spending and tax collections,
as a percentage of gross domestic product each year,
for the past 50 years.
The higher line is U.S. federal government spending.
Roughly speaking, U.S. federal government spending
is between 20 and 24% of GDP each year.
The lower line is U.S. federal tax collections,
which are between 16% and 20% of GDP each year.
Now, what does it mean when spending
is more than tax collections?
This means that the government is operating in deficit.
You can see a lot of deficits in this graph.
We can learn a lot about recent U.S. history,
just by looking at this one picture.
For example, we see that spending,
as a percentage of gross domestic product,
was highest during the President Regan Defense Build-Up
of the mid-1980s.
We also see that spending as a percentage of total GDP,
was the lowest in the mid to late 1990s.
This is often call the Peace Dividend,
after the end of the Cold War.
The big spike up in spending, and down in revenue in 2009
is a consequence of the world-wide financial crisis,
and associated global recession, slash, depression.
We see that U.S. government spending
went up dramatically as a percentage
of gross domestic product and cash collections
from taxes went down dramatically.
This combination resulted in the largest deficits
in the history of the United States government.
We see it all summarized here in this one picture.
And you can see that it took several years for spending
to fall and revenue to rise to more normal levels.
Now, we see here that the far end of the table,
that represents the next 10 years, projected.
This is as of 2017.
Now, I've been looking at these pictures every year
for years, and typically, there is a deficit this year.
But if you look into the future,
it's always the case that just a few years from now,
spending will go down, tax collections will go up,
and we'll be in a surplus situation,
and everything will be nice and rosy.
Ah, well, let's look at the forecast
for the next 10 years after 2017.
Remember, historically, it has almost always been the case,
that right now, we're running a deficit,
but if we look three, four, five, six years in the future,
then cash collections from taxes will go up,
spending will go down, and the budget will be balanced.
Here, no, you could look out as far as you
want in the future, and the future forecast
suggests that there will never be a case, ever again,
in my lifetime or your lifetime,
that the U.S. government budget will be in balance,
at least, according to these forecasts.
Without a change in taxing and spending policy,
it is deficits as far as the eye can see.
And you can understand a lot about public policy,
just by looking at this one graph.