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Page 4

The Growth of Government and the Economic Slowdown

A closer examination of GDP per capita over the last 20 years, from 1976 to 1996,

$100,000

1996

$28,540

$10,000

458% / Century

1869

$3,124

3% / Century

$1,000

1776

$919

30,000 B.C < $1.00

$100

0

176

376

576

776

976

1176

1376

1576

1776

1996

Year

indicates a slowdown. Figure 2 shows that the 20-year compound annual growth rate of

GDP per capita from 1976 to 1996 declined from about 2.5 percent per year to about 1.5

percent. The 2.5 percent growth rate of GDP per capita in 1976 corresponds to a

doubling every 28 years. The slower 1.5 percent GDP per capita growth rate corresponds

to a doubling every 46 years. The American Dream, the engine of our prosperity, has not

stopped, but it has slowed down.

One important factor that is slowing the American economy is the ever-increasing

consumption of our national wealth by government. In 1913 the Sixteenth Amendment

lifted the constitutional ban on federal income taxes. As Table 1 shows, the first federal

income tax in 1914 was almost insignificant in terms of the total and the per capita

amounts paid, the percentage of GDP consumed, the percentage of the population

required to pay taxes, and the size and complexity of the Internal Revenue Service.