Government and Its Special Days: 2010 Edition

posted at 10:47 pm on August 30, 2010 by J.E. Dyer
[ Economics ]   

For those who were wondering, Tax Freedom Day for the nation was (on average) 9 April this year.  Folks in Connecticut, which bagged the top slot (or bottom slot, depending on your perspective), didn’t celebrate their freedom until 27 April.  If you live in California, it was 14 April.  Oklahoma celebrated on 6 April, edged out by Baja Oklahoma (Texas, for those with hobgoblins on the brain) on 5 April.  You can look up your state here.

As the Tax Foundation points out, Tax Freedom Day falls considerably earlier than Everything the Feds Spent Day (to which they more primly refer as “Taxes plus the federal deficit”).  In 2010, Everything the Feds Spent Day fell on 17 May.  Amazingly, this 38-day gap was actually bested in 2009, when Tax Freedom Day was 8 April and ETFSD was 21 May (yielding a 43-day gap).

But as much food for thought as there is in this gap, there is yet more in a third date that passed by virtually unnoticed 11 days ago.  On 19 August, Americans could, if they had been quick, have celebrated Cost of Government Day.  The Center for Fiscal Accountability explains:

This is the day on which the average American has earned enough gross income to pay off his or her share of the spending and regulatory burdens imposed by government at the federal, state, and local levels.

In 2010, Cost of Government Day falls on August 19.  Working people must toil 231 days out of the year just to meet all costs imposed by government - 8 days later than last year and a full 32 days longer than 2008.

In other words, in 2010 the cost of government consumes 63.41 percent of national income.

CFA breaks the calculations down by state as well.  It should be no surprise that the highest-tax states (as indicated by the ones in which Tax Freedom Day fall the latest) are also the states in which Cost of Government Day falls the latest.  Connecticut, New Jersey, New York, and Maryland are the top four cost-of-government states:  their Days fall in September (Connecticut’s, on 17 September, a whopping 29 days after the national average Day).

High taxes correlate with high-cost government.  By contrast, there is no discernible pattern of late Tax Freedom Days – high tax rates – yielding smaller calendar gaps between Tax Freedom and Cost of Government.  No matter how much the people are directly taxed, the gaps remain huge.  So much for the “raise taxes” argument.

The CFA study is also uniquely useful because it looks at how hard we have to work to pay the cost of regulation, as well as to pay overt taxes.  CFA calculates that the average American worked 74 days in 2010 to cover the cost of federal, state, and local regulation.  (More here.)  Some regulations are necessary and are considered desirable by most people in a given society, but all regulations impose a cost on our own earnings and opportunities.  Regulation doesn’t become free just because we agree with it.  It always adds cost and makes us work harder to procure the same things.  I like the CFA study because it calls this out and puts a price on it.  CFA offers a raft of documentation and descriptions of methodology, for those who are interested.

The other virtue of the CFA figure, however, is that it illuminates how much of what we’ve made in a year should have gone directly to government at each level, if we wanted to avoid annual deficits and growing debt.  In 2010, it took 104 days of work for the average American to pay for federal spending, and 52 more days to pay for state and local spending.  That’s 156 days, which falls on 5 June.  Of course, none of our average workers across America won his tax freedom that late.  The very latest anyone celebrated tax freedom was the 27 April cut-off in Connecticut.

This path is absurdly unsustainable.  It becomes insane to talk about balancing government budgets.  Basically, between taxes and regulation, the average American should have had no personal discretion over his earnings until 20 August this year, when he could finally start spending at his own discretion, as opposed to literally working to service the government.  I don’t know about you, but there’s no way I could live on only the income I make from 20 August to 31 December.

Even if we eliminate the 74 days worked to pay for regulation, on the theory that you do receive some level of benefit from buying regulated things (e.g., low-emission gasoline mixtures) and it’s hard to separate the cost from the benefit, that still leaves us with 5 June.  How poorly would you have to live, to get along only on what you earn for just under 7 months out of the year?  More poorly than you live now, getting along on your earnings for just under 9 months out of the year, that’s for sure.  (Don’t forget, however, that the more regulated we are, the more living on 9 months’ earnings is like living on 7 months’ earnings.)

At the 2010 level of spending, a crude measure of the difference between an annual balanced budget and an annual deficit is two months of an average worker’s earnings.  But, of course, the annual deficit for 2010, as big as it is, is only a relatively small part of the debt problem.  One way to think of managing the national debt is to imagine paying it off by ceding those extra months of your income to the federal government for some period of time, to retire its securities.  But that, in turn, doesn’t address the state debt that has been mounting for the last 20 years (or the burden of unfunded entitlements, by far the largest fiscal load looming before us).

We are taxed enough.  We are regulated to a level that represents almost 50% of direct taxation.  What has to change is the spending.  The course of regulation has to change too.

Cross-posted at The Optimistic Conservative.

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