Tuesday, December 14, 2010

Warning on US Debt to Revenue by Moody's

One of the reasons why Moody's criticized the recent tax cut bill is because it will reduce tax income and increase our debt to revenue ratio. The above chart shows why Moody's is concerned. We normally talk about debt as a percentage of GDP. The US does not look much worse than several other nations on that metric. On the other hand we look much worse than almost every other country on debt to revenue. That is because our tax revenues are very much lower than those of other countries in relation to their GDP. We are a low tax nation compared to the rest of the world and our policy direction appears to be toward even lower tax revenues as a percent of GDP and as a percentage of our debt burden.

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