Government consumes Americans' earnings

Each year Americans for Tax Reform Foundation authors the Cost of Government Day (COGD) report which measures the number of days worked to pay off the annual burden of government spending and regulation. In 2011, Americans have to work 224 days (through August 12) to support the government Goliath. For the third year in a row, government consumes Americans’ earnings at unprecedented levels. This year, Americans are left with a meager four and half months to earn enough to pay their bills and save for their own future.

While “stimulus” spending peaked in 2010 and the banking bailout “only” has a few billion left in projected outlays, federal spending has predictably not returned to manageable levels. Even though the “stimulus” spending binge was sold as a temporary fix to the country’s economic malaise, the Congressional Budget Office’s projections don’t bear this out; the federal government’s share of the economy is estimated to be at its lowest in 2014 at 23 percent—over five percent higher than revenues’ historical average, and two percent higher than the spending average of the past forty years.

As a share of the economy, President Obama’s lowest spending year is 13 percent greater than the most expensive year of the Bush Administration—a difference of $477 billion in today’s economy. After three years of the largest spending deficits since WWII, Obama’s policies have confirmed that so-called emergency “stimulus” is only a permanent increase in more government spending. Americans worked 103 days in 2011 just to pay off federal spending—13 more days than before Obama took office.

The recent debt limit negotiations reveal how taxpayers reached a point where they work eight and a half months of the year to pay off the costs of government. President Obama, recognizing his spending binge could not be maintained with current revenue streams, insisted that the debt limit increase be accompanied by higher taxes, an obstinacy that stalled the debate for months. Even when a potential deal was reached a week before the Treasury’s August 2 deadline, the President torpedoed the plan to insist on higher taxes.

The 11th-hour deal allowing the President further borrowing authority signals a total refutation of the Obama tax-and-spend agenda. Without raising any taxes, the plan will cut at least $2.5 trillion in spending over the next decade, and will only increase the debt ceiling by amounts less than requisite spending cuts enacted. By rejecting the notion that taxes fix spending problems, Republicans finally forced the President to confront his spending addiction. 

What’s more, the President’s fixation on taxes affects more than spending habits and deficits—it destabilizes the environment in which economic growth could occur. For example, Obamacare’s $480 billion in new taxes alter employer-employee relationships. They undermine inter-business agreements premised upon an index of employment factors like benefits and salary, not merely health care coverage.

Taxes create what economists call deadweight loss: the value of goods and services not produced due to less disposable income and higher prices—the babysitter not hired, the car not manufactured, and the birthday gift not given among other transactions. Higher taxes kill jobs and squeeze money out of remaining taxpayers. These deadweight losses are not quantified in the COGD report but they remain a significant determinant in the economy’s size. A smaller economy means a later COGD as federal spending continues to consume a larger share of domestic production.

Regulations, like taxes, impose economic burdens on business activities. Americans worked 77 days in 2011 to pay off higher prices of electricity, banking, and thousands of common purchases affected by compliance costs. The regulatory burden increases after accounting for the economic costs of deadweight loss and uncertainty surrounding the application of agency rule-making.

Regulations are rarely applied consistently. For example, of the 1,372 Obamacare waivers issued by the Department of Health and Human Services, 50 percent were given to unionized businesses encompassing more than 3 million workers—a noticeable statistic considering only 12 percent of businesses are unionized.

The latest financial regulatory overhaul has also inspired tremendous insecurity that stalls economic growth. Treasury Secretary Timothy Geithner fostered uncertainty by claiming that the era of “too big to fail” ended after passing Dodd-Frank, reneging a few months later, saying “in the future we may have to do exceptional things again” and “you don’t know what’s systemic and what’s not.” Positive regulatory policy is founded upon clear and universal application, not ad-hoc preferences. 

There is a better way than rule-making to grow the economy, a better way than more taxation to increase revenues. Two ten-year paths are projected in the Cost of Government Day report. Current projections based on CBO data and an expected rise in the cost and number of regulations places COGD on August 30 by 2021. The second path is toward an earlier COGD—July 22, one day later than in 1982. The economically vibrant and less debt-laden path begins with reducing federal spending through the House Budget plan by $5.8 billion, paying federal workers a market equivalent wage, and preventing more regulations on job creators. Revenues increase because there are more taxpayers and more prosperity. For an earlier Cost of Government Day to become reality, reforms like the House Budget Plan or the debt limit deal need to take place. Only then will the government Goliath consume less and leave businesses, families and individuals with more.

Jacob Feldman is the Thomas Jefferson Fellow for the Americans for Tax Reform Foundation and author of the 2011 Cost of Government Day Report.

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