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Free At Last

Today the average American finally pays off the burden of government. It only took 192 days. According to a new report from Americans for Tax Reform (ATR), government effectively consumes 52.6 percent of national income.

Unfortunately, the Bush years have not been good ones for Americans tired of turning so much of their incomes over to government. Despite the Bush tax cuts, people are working several days longer for federal, state, and local governments now than in 2000, when George W. Bush was elected president. Cost of Government Day (COGD) rose two days from 2006 alone.

There have been tiny declines along the way, from 2003 to 2004 and 2005 to 2006. But, notes study author Elizabeth Karasmeighan, “the drop in the cost of government was short lived.”

The problem is largely one of spending. Writes Karasmeighan: “The average American worker will have to work an additional 6 days out of the year over 2000 to pay for government spending on all levels. Federal spending continues to be the main driver of the Cost of Government index, adding 6 days on to the days Americans were forced to work for federal government spending in 2000.” From 2006 to 2007 federal spending upped the financial burden on taxpayers by a half day.

Sadly, the years of Republican governance have erased much of the gain from nearly a decade of divided government between President Bill Clinton and the GOP Congress. Karasmeighan explains:

The elevated levels [of] federal spending over the past seven years have wiped out 37 percent of the unprecedented reduction in the burden of federal spending as a percentage of national income from 1993-2000. Federal spending (as a percentage of income) declined for eight straight years, which reduced government spending from one out of every four dollars of national income to one out of every five dollars. By 2000, average Americans worked 14.3 days less of the year to pay off their federal spending burden than in 1992. In just the past six years, however, 37 percent of that gain has been eliminated.

Outlandish outlays, not tax cuts, are responsible for today’s deficits. Karasmeighan points out that 70 percent of the cumulative deficit since 2002 resulted because spending rose more quickly than national income. A simple “spend only what you can afford to pay policy” would have largely eliminated the deficit.

The future looks even uglier. The 78 million baby-boomers begin to retire next year, and will ultimately generate a financial tsunami through Social Security and Medicare. With Congress lacking the slightest political backbone, so necessary to tackle entitlement reform, the U.S. will have to find a way to cover tens of trillions of dollars of unfunded liabilities under even the most favorable economic circumstances.

State and local spending accounts for another 1.6 days of the COGD increase from 2000 to 2007. This year the average American will work nearly 46 days to fund state and local governments. Moreover, the future likely will be worse. Reports ATR: “Even with looming unfunded pension and health care liabilities, states are failing to reform their entitlement programs. On the contrary, many states used their 2007 sessions to discuss expanding health care programs and imposing health insurance mandates.”

The regulatory burden also is growing, despite roughly six years of a supposedly free market Republican president and Congress acting in tandem. Reports ATR:

The cost of regulation as a percent of national income remains at 16.9 percent for the fourth year. It is important to note, however, that revised data on regulatory costs reveal that COGD reports prior to 2006 were underestimating the cost of regulations. New regulations imposed following the War on Terrorism and corporate scandals significantly increased the regulatory burden in 2001 and 2002 in particular. Concurrently, the cost of tax compliance continues to grow. In 2007, the average American will work 61.8 days to pay for the regulatory costs, nearly 1 full day more than was required in 2006.

It is important to note that these estimates include only compliance costs. Equally significant, but more difficult to estimate, are the economic disruptions result from regulation.

Writes Karasmeighan: “These hidden costs slow the economy, as they introduce inefficiencies and distortions, and reduce the economic reward left over for productive activity.” Slower economic growth means lower production, smaller wages, and fewer jobs. By some estimates the efficiency losses of regulation run as much as $1.5 trillion, rivaling or exceeding compliance costs.

The regulatory burden, too, is likely to continue going up. Since regulatory costs are less visible, people tend to be less aware of the threat of increased regulation and less able to mobilize against new regulatory proposals. ATR warns that “with the combination of the Democrat Congress and lobbying by the new constituencies created by recent regulations, the upward trend of regulations will continue in future years.

IN FACT, THE COMPETITIVE ENTERPRISE INSTITUTE has issued its own comprehensive report on federal regulation, authored by Clyde Wayne Crews, Jr. The scope and sweep of government, and especially federal, controls are enormous.

According to economist Mark Crain, regulatory compliance costs ran $1.142 trillion last year. By way of comparison, Crews points out that this number exceeds total income tax collections and accounts for about nine percent of GDP. But that’s not the end: “The Weidenbaum Center and the Mercatus Center jointly estimate that agencies spent $41 billion to administer and police the regulatory state in 2006,” writes Crews.

There are a number of ways to measure the regulatory state. For instance, the Federal Register contained 74,937 pages last year, a 1.4 percent increase (though still below the number in 2004). Although the number of pages was up, the number of final rules fell six percent, to 3,718. Notes Crews: “Well over 48,000 final rules were issued from 1995 to 2006 — that is, during Republican control of Congress.”

More than 4,000 rules are currently in the federal pipeline, 139 of which are considered to be “economically significant,” that is, likely to have an economic impact of at least $100 million. That number is up slightly from 2005.

Five agencies account for almost half of all regulations: Treasury Department, Environmental Protection Agency, Agriculture Department, Interior Department, and Commerce Department. The issues run the gamut: substances prohibited for use in animal feed and food; country-of-origin labels for food; nondiscrimination in public facilities; occupational exposure to diseases and substances; automobile fuel economy standards; energy efficiency rules; emission standards; satellite broadcasting signal carriage requirements; home safety rules; furniture flammability standards; and many, many more.

The problem is not that all regulations are unnecessary or badly designed or unduly costly. The problem is that we have trouble assessing the relative merits of various regulations, and, more important, policymakers usually have no interest in such assessments even if they exist. Observes Crews:

We simply do not know whether regulatory benefits exceed costs. But agencies are not the real culprits. Congress regularly shirks its constitutional duty tomake the tough calls. It delegates considerable law-making power to agencies, and then it fails to ensure that they deliver benefits that are greater than costs. Thus, agencies can hardly be faulted for not guaranteeing optimal regulation or for not ensuring that only “good” rules get through.

Since legislators are no more likely tomorrow than today to find the courage necessary to fulfill their constitutional duty to constrain agency rule-making, regulatory costs seem destined to continue rising. Crews calls for “making Congress as accountable for regulation as for legislation.” It’s a great idea. But Congress is as likely to accept regulatory responsibility as Congress is likely to eliminate the Departments of Agriculture, Commerce, Education, Energy, Housing, and Transportation, the sources of so many unnecessary and expensive boondoggles. Or to eliminate the income tax, while cutting expenditures accordingly.

If there is any good news, it is that some states are better than others. In Alabama and Oklahoma taxpayers finished paying for government on June 22. Residents of Alaska and Mississippi quit paying on June 23. Seven more states finished in June

Unfortunately, people in sixteen states, along with the District of Columbia, will continue paying for days, or weeks, later. Connecticut sets the record: August 2. New York trails at July 28. New Jersey follows on July 22. Of Connecticut, Karasmeighan explains, the burden “is so onerous both because it has very high relative incomes, getting a big hit from the federal income tax, and because it has high state and local taxes.”

The mantra from the left continues to be that Americans are undertaxed; the public sector is starved of funds; there is no problem that a new government program cannot solve. But the numbers prove otherwise. Today government spending and regulation take more than half of our national income. That’s a far heavier burden than a free people should ever accept.

Doug Bandow
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Doug Bandow is a Senior Fellow at the Cato Institute.
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