Revenue Growth: Average Federal Revenue (Driven by Taxes)
In-Line With GDP Growth
1965 — 2005 USA Real Federal Income Growth by Category vs. Real GDP Growth
Revenue Growth
‘05 vs 40-yr 1965 Y/Y 2005Y/Y | 40-yr CAGR| Variance Comments
Individual Income Taxes 11% 11% 3% 8% Individual & corporate income taxes are cyclical; 2005 Y/Y
growth were significantly
Corporate Income Taxes 15 43 2 41 affected by economic recovery post 2001 recession. Social Insurance Taxes 12 5 1 Social insurance taxes & other fees are less cyclical. Social insurance taxes grew Other Taxes & Fees -5 1 1 0 significantly faster than GDP. Total Federal Revenue 9% 11% 8% Real GDP 7% 3% 0% “Normal” Note: All data are inflation adjusted using GDP price index from BEA; ’05 vs. 40-yr variance is rounded. KP Data source: White House Office of Management & Budget. (@)E) www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 225
Revenue Growth: Observations from Previous Slide
We chose a 40-year period from 1965 to 2005 to examine ‘normal’ levels of revenue and expenses. We did not choose the most recent 40-year period (1969 to 2009) as USA was in deep recession in 2008 / 2009 and underwent significant tax policy fluctuations in 1968 /1969 and subsequently many metrics (like individual income and corporate profit) varied significantly from ‘normal’ levels.
Total USA Inc. revenue (collected via taxes) has grown at an average 3% annual rate, in-line with 40-year GDP growth rate. Corporate taxes have -— on average — grown at 2% annually over 40 years. Social insurance taxes (for Social Security and Medicare) have grown at an average 5% annual rate, above the 3% GDP growth.
Questions:
1) How crucial is the role played by lower relative tax rates — especially for corporations — in stimulating job and GDP growth and helping American maintain / gain / constrain loss of global competitive advantage?
2) Should social insurance tax growth be more closely aligned with GDP growth?
Note: All data are inflation adjusted using GDP price index from BEA; 05 vs. 40-yr variance is rounded.
KP Data source: White House Office of Management & Budget. www.kpcb.com ne. at Might a Turnaround Expert Consider? B kpeb USA Inc. | What Might a T id rt Consider? 226
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