We stopped paying for government three months ago. Tax Freedom
Day was April 23rd. That’s when the average American effectively
finished paying taxes to government at all levels. But only the
average American. Anyone living in a high-tax state, such as
Connecticut, New Jersey, and New York, had to work another couple
weeks for government.
But taxes are a poor measure of the total cost of government.
Because of sizable and persistent deficits, total public spending
is a better standard of what we pay for government. Even that isn’t
enough, however. Regulation adds another substantial charge to the
bill.
Americans for Tax Reform adds these together to come up with
Cost of Government Day. That’s when we really stop paying for
government. Last year COGD was July 12. It advanced four days this
year to July 16. Explains ATR: “In other words, the cost of
government consumes 53.9 percent of national income.”
This isn’t the latest COGD ever. Four times since 1977 COGD fell
after July 16. The record was July 23 in 1982, when President
Ronald Reagan was just beginning to restrain spending and
regulation. The more recent high was July 20 in 1992, after
President George W. Bush had raised taxes and his appointees had
been busy churning out new regulations. Slower economic growth also
magnified the share of the economy seized by government.
The latest COGD finds individuals laboring 83.7 days to pay for
federal spending, up a day from last year. State and local spending
requires 50.5 days of work, an increase of a day and a half.
Government regulation accounts for 62.6 days, up a day. In short,
the cost of government is rising steadily across the board.
But cost increases in all of these areas could accelerate.
Nationalizing health care, a favorite idea on Capitol Hill, would
run hundreds of billions of dollars annually. With the Baby-Boomers
beginning to retire, entitlement costs could soon overwhelm us.
Medicare and Social Security alone have a total unfunded liability
in excess of $100 trillion. Expansive regulations also pose a
threat. Warns ATR, “The big danger in the regulatory arena is that
these costs are threatening to explode as well….global warming
regulation, particularly any of the cap and trade bills pending in
Congress, would add another trillion dollars to regulatory
costs.”
COSTS ARE RISING absolutely and as compared to national income. For
instance, federal spending relative to the economy is up 11.4
percent since 2000, when both a Republican president and Congress
were elected. In contrast, from 1982 to 1989, under President
Reagan and a mostly Democratic Congress, federal outlays fell about
ten percent relative to the economy. Between 1994 and 2000, when a
Democratic president faced a Republican Congress, spending fell
12.4 percent relative to the economy.
That’s not much of a record for the GOP. Rather, it suggests
that we are best off with divided government, where for reasons of
partisan advantage the different players seek to block each
other.
The problem is too much spending, not too little taxes. Federal
revenues increased dramatically in recent years in the midst of
good economic growth. But all of the extra money was spent.
Although the deficit fell from $413 billion in 2004 to $162 billion
in 2007, notes ATR, “Had federal spending been held to the rate of
national income growth since 2000, the deficit would have been
eliminated entirely by 2006.” But spending continued to race ahead
of income.
Regulation, too, has been increasing. Although regulatory costs
were mostly stable during the last few years, “this year regulation
is estimated to cost 17.2 percent of national income,” warns ATR.
Many different agencies contributed to the high price we are paying
to have our lives run by Washington — the Environmental Protection
Agency, Department of Homeland Security, and Department of
Transportation were responsible for particularly hefty regulatory
hikes. A “cap and trade” global warming regime likely would cost
more than any other single regulation approved in years.
Still, these figures underestimate the impact of regulation on
all of us. Notes ATR: “Not counted are the negative economic
effects of regulatory requirements. These hidden costs slow the
economy, as they introduce inefficiencies and distortions, and
reduce the economic reward left over for productive activity.
Regulations may prevent new firms from entering the market, or stop
existing ones from expanding. They may even force some existing
firms out altogether. The end result is less overall output, fewer
jobs, lower wages and lower economic growth.” Estimates of these
costs have run as high as $1.5 trillion.
OF COURSE, WASHINGTON focuses on the federal numbers. But state and
local outlays are a problem as well. They were at a low of 42.4
days in 1999, but have since increased 19.1 percent relative to
national income. Explains ATR: “This runaway explosion in state and
local spending is the main reason COGD increased by four days over
last year. Following the election of more governors and legislators
advocating higher spending in 2006, state and local spending has
increased by 13.5 percent relative to the economy.” Just a few
people made a big difference.
The worst states — that is, the states where government is most
costly — overlap with the high taxers. Connecticut tops the list:
its citizens must labor until July 31 before there are done
covering government’s costs. New Jersey is just a day behind. New
York lags two days back. California falls in at July 23, though,
warns ATR, “Dramatically worsening fiscal conditions in this state
will lead it to soon challenge the top three for worst state for
taxpayers.” And all citizens, since even non-taxpayers will suffer
from lower economic growth and fewer jobs.
In contrast, Alaska is the best state, with residents working
slightly less than a half year for government, with COGD at June
21. Mississippi is next at June 30, and both Montana and West
Virginia fall on July 1.
Unfortunately, the temptation in Washington, D.C. and many state
capitals across America is to do nothing no matter how serious the
impending crisis. Unless legislators confront burgeoning
entitlement costs and reject politically popular nostrums such as
expanded government health programs, federal spending is going to
rocket upward. Despite the recent failure of climate change “cap
and trade” legislation on the Senate floor, pressure for a massive
new climate change regulatory program remains strong. The dynamic
in many states and localities continues to favor high taxing and
spending. The result of all of these factors is likely to be a
steadily increasing advance in Cost of Government Day.
