Anyone responsible for an important enterprise must understand how the enterprise works and how well it is doing. An important first step in managing and driving improvement is establishment of KRM's, Key Result Measures, for the enterprise. Such measures must be carefully selected and based on accurate data designed to identify important trends and statistically significant changes. Such tools greatly facilitate diagnosis of problems and planning, implementation, and documentation of improvement projects.
In the charts below, you will see the results of an effort to identify high level measures for these two major entities. For all these variables, I plotted data from 1960 through 2014, the last full year for which government supplied data are available. I used ten year running averages because such averages eliminate noise and make each point very accurate, containing a lot of data, and because I didn't want to be accused of trying to correlate ups and downs with presidential terms. We attribute far too much of the good and bad news about our government and our economy to whoever happens to be in office. The actions a current administration or congress might take are far more likely to take effect a few years down the road rather than immediately. Our economic ship and our government ship are big and bulky and slow to turn.
The most important measures are the size and growth rate of our economy. After that, the issues are how much of that economy is consumed by the federal government, how the money to fund the government is pulled from the economy, and how that money is spent by the federal government. Some of these measures are controllable factors, independent variables, and some are lagging results or dependent variables.
Variables that can be controlled over time
- Spending as a percent of GDP
- Percent of spending available for transfer payments
- Percent of revenue coming from income tax, payroll tax, and corporate tax
Variables that are lagging and dependent
- Total federal debt as a percent of GDP
- GDP growth rate
The charts below indicate that we have opportunities with all three independent variables, one of them in serious trouble, and major problems with both dependent variables:
- A rapidly diminishing portion of our federal spending going to infrastructure and other key economic support items and a rapidly increasing portion going to transfer payments.
- Unwillingness to match spending and taxing and resulting accumulation of unsustainable debt.
- A corporate tax structure that advertises ridiculously high rates and motivates game playing to reduce the tax bills with the result that high rates are delivering low tax revenues even while complicating and discouraging business.
- The federal debt continues to climb and is now at or above annual GDP.
- GDP growth is in a long term consistent downward trend.
here on the history of our national debt. The last good years were when we all worked very hard to pay off the burdensome debt incurred during WWII. That favorable trend ended in the 1970's with the first oil crunch and the end of $3 per barrel oil.
Here are the actions we need to take to right the ship and change the trends on GDP growth and Federal Debt.
- Reform corporate taxes to establish a new low competitive rate that every corporation pays, no favors allowed. Something in the range of 15 to 20% on all publicly reported profits, wherever earned, should do it.
- Reform our social welfare programs, Social Security and Medicare, to stop paying bills for and sending checks to people who can afford to pay their own bills with their own income.
- Limit Federal Government spending to 20% of GDP and fund 15% of it from corporate income taxes, 35% from personal income taxes, 30% from the payroll tax, and the remainder from excise and customs taxes.
It will take a while to kick in, but we would know this strategy has been successful if the GDP moving average and the federal debt curves change direction. Of course there would be earlier indicators such as more positive attitudes, more investment, better individual quarter measurements, etc., but, if we celebrate those, declare victory, and stop the improvement efforts, all will be lost. Solving these problems will require an extended attention span.
Below are links to sources used for the data in the above charts:
Who Pays Income Tax: http://taxfoundation.org/article/summary-latest-federal-income-tax-data
GDP and Government Revenue and Spending: http://www.bea.gov/itable/index.cfm
On Payroll Tax Regressiveness: http://www.wsj.com/articles/SB10000872396390443684104578063140488175464
National Debt History: https://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm
Corporate Profits Info: http://www.nytimes.com/2014/04/05/business/economy/corporate-profits-grow-ever-larger-as-slice-of-economy-as-wages-slide.html?_r=0