Special Report

Do You Know What Today Is?

Even if you do, it's going to cost you, BIG TIME, because it's Cost of Government Day.

By 7.16.08

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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.

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About the Author
Doug Bandow is a senior fellow at the Cato Institute. A former Special Assistant to President Ronald Reagan, he is the author and editor of several books, including The Politics of Plunder: Misgovernment in Washington (Transaction).