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Katchum
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Albert Sung is the author of Correlation Economics, monitoring breaking economic news on 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 Ashland, a... More
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Correlation Economics
  • Interest Payments As A Percentage Of Tax Revenue: Fiscal Year 2013 0 comments
    Nov 10, 2013 7:28 AM

    As fiscal year 2013 passes by we note that the interest payments as a percentage of tax revenue has declined over the past year (Chart 1: red line). The number came in at 13% and wasn't due to a decrease in interest payments.

    (click to enlarge)
    Chart 1: Interest Payments

    As a matter of fact, the interest payments went up this year due to higher debt and higher interest rates (Charts 2 and 3).

    (click to enlarge)
    Chart 2: U.S. Debt Vs. Interest Payments
    (click to enlarge)
    Chart 3: 10 Year U.S. Bond Yield Vs. Interest Payments

    The reason why we see a decline in the interest payment to tax revenue ratio is because of the huge increase in tax revenues the government received this year (Chart 4).

    (click to enlarge)
    Chart 4: U.S. Government Tax Revenue

    This was all due to a tax increase at the start of 2013 (Chart 5: blue line), which plunged the savings rate (Chart 5: red line) of households.

    (click to enlarge)
    Chart 5: Tax Revenue Vs. Savings Rate

    All in all a pretty positive year for the U.S. budget.

    The question is, what can we expect from the coming year? The projected tax revenue is going to follow this trajectory according to the Federal Budget. This is more than enough to pay for the increase in interest payments due to higher public debt and higher interest rates. It will all depend on what Janet Yellen will do. If she decides to increase QE, we might see even lower interest payments due to lower interest rates.

    Chart 6: Projected Revenue

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