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Albert Sung is the author of the Katchum Macro-Economic Blog, monitoring breaking economic news from a day to day basis. He started investing in 2008 because of the economic crisis and holds a masters degree in chemical engineering. Previously, he worked several years as a process engineer at... More
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  • Federal Government Tax Revenue Has Been Declining 0 comments
    Aug 3, 2013 3:04 AM

    Whenever the government raises taxes or when corporate profits rise, tax revenue will rise with it (blue chart).

    But this has implications, if tax revenues rise, this will deplete the personal savings of the people. The red chart shows the personal savings rate (%). There is a negative correlation to be found here.

    (click to enlarge)

    It shows us that higher tax revenues always lead to lower personal savings rates and vice versa. From this correlation we can deduct one thing. There is a limit to raising tax revenues. If the personal savings rate gets to 0%, there is no more margin to increase taxes.

    At this moment the personal savings rate is 4.4% and is almost at a historic low. Contrast this to the savings rate of China, which is 50%. Also note that tax revenues have been declining as a percentage of GDP. This means that corporate earnings growth isn't keeping up with GDP growth at a constant rate of taxation.

    To read more about this correlation go to this article.

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