Monday, September 26, 2011

The Biggest Driver Of U.S. Government Revenues

I like Political Calculations and have been remiss in linking to his thinking.
From PC:
What's the biggest single factor that determines how much money the U.S. federal government will collect in any given year?

For our money, it's Median Household Income. The chart below, which shows the relationship between median household income and the total receipts of the U.S. government for each year since 1967, the earliest year for which we have median household income data, shows why we think that:

Total U.S. Government Tax Collections vs U.S. Median Household Income, 1967-2010 Here, we found that a simple power law relationship exists between the amount of median household income in the United States and the total amount of money that the federal government collects each year, which is why we've opted to show both the horizontal and vertical axes on a logarithmic scale: a power law relationship becomes a straight line when graphed on such a chart.

All in all, given the variation we observe from year to year, the formula we presented on the chart will be accurate to within 12% of the actual amount of money collected by the U.S. government in any given year if you only know the median household income, and often much less than that amount. That's pretty remarkable considering how much, and how often, U.S. income tax rates have changed since 1967.
But then, you don't have to take our word for it. You can use the tool below to do the relevant math for yourself....MORE
Also at Political Calculations:

The Itemized Tax Deductions of the Rich and Famous