Wednesday, July 11, 2007

Cost of Government Day 2007

In his opinion in the 1904 Supreme Court case, Compania de Tabacos v. Collector, Justice Oliver Wendell Holmes wrote that “Taxes are what we pay for civilized society.”

At the time, however, taxes constituted a small fraction of the U.S. economy and of each individual's household income. After the expiration of a special federal tax on chewing gum in 1902, according to the U.S. Department of the Treasury, "federal receipts fell from 1.7 percent of Gross Domestic Product to 1.3 percent."

The income tax was made constitutional by the 16th Amendment in 1913. The difference it made is described with surprising candor by the Treasury Department:

Prior to the enactment of the income tax, most citizens were able to pursue their private economic affairs without the direct knowledge of the government. Individuals earned their wages, businesses earned their profits, and wealth was accumulated and dispensed with little or no interaction with government entities. The income tax fundamentally changed this relationship, giving the government the right and the need to know about all manner of an individual or business' economic life. Congress recognized the inherent invasiveness of the income tax into the taxpayer's personal affairs and so in 1916 it provided citizens with some degree of protection by requiring that information from tax returns be kept confidential.
Still, in those days, income taxes were a burden shouldered by few people. Less than 1 percent of Americans were required to pay taxes or file tax returns. (The now-ubiquitous Form 1040 was introduced in the 'teens.)

Even World War I, which raised taxes so substantially that the 1917 budget was "almost equal to the total budget for all the years between 1791 and 1916," brought the portion of GDP absorbed by the federal government only to 25 percent.

The First World War era seems blissfully tax-free in comparison to today. And I mean "today."

According to Americans for Tax Reform, July 11 is the day this year that the average American can begin keeping his earnings for himself and his family rather than turn it over to the government in the form of taxation or regulatory costs. This year, July 11 is Cost of Government Day.

As explained in a report compiled by ATR's Elizabeth Karasmeighan,
Cost of Government Day (COGD) is the date of the calendar year on which the average American worker has earned enough gross income to pay off his or her share of spending and regulatory burdens imposed by government on the federal, state and local levels.

Cost of Government Day for 2007 is July 11th. With July 11th as the COGD, working people must toil on average 192 days out of the year just to meet all the costs imposed by government. In other words, the cost of government consumes 52.6 percent of national income.
July 11 is just an average, of course. Some states impose bigger tax burdens on their hard-working citizens than others do. As it happens, Virginia's Cost of Government Day is also today. But, as Doug Bandow notes in a column in The American Spectator:
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."
Although Americans at the turn of the century did not enjoy all of the hallmarks of civilization that we do -- no "American Idol," no iPhones, no paparazzi pursuing Paris Hilton -- they could read recent novels by Mark Twain and Henry James, play ragtime on the parlor piano, see a vaudeville show, or enjoy a cold brew at a local pub.

That's not a bad bit of "civilization" for less than 2 percent of national income.

At least we have the rest of the year -- what little is left of it -- to enjoy the fruits of our labor.


Anonymous said...

A terrible tale. But nice work telling it... said...

As a liberal it is with hesitation I admit how much I like the COGD concept. To quote James Brown, "I'm paying taxes, but what I am I buying?"

Help me understand the rational for the formula. How are things like education factored? Is is gross outlay or [tax outlay for public ed - cost of private education = net loss of gov administered ed]. I doubt it. It looks like mainly gross outlays. I'm guessing a deeper delving into the metrics might be *interesting*.

The "price" of civilization and the size of government are two things we might likely disagree on where to draw the line, but in many ways is not really a matter of efficiency of expenditure?

Regulations are a hindrance, Yes, yes...(60 days a year of work to pay for them?). I don't want an unregulated food market. I don't trust the market to keep our foods safe. Some standards are good.

One method of reducing their waste of our money is surgically identify areas and extract them from body governmentsaurus. The other to is eliminate both the cost and the benefit. How is this not the latter method?

The concept is political crossover winner however. While I don't have the time to look at this in the depth it deserves right now but I think that eliminating inefficiency in government is common goal shared by both ends of the spending/government size spectrum. It even appeals to deep-blue PBS-brainwashed fools like myself :)

Anonymous said...

Whenever I hear this idea (that we work to pay for "the government" until some day in July, and then "have the rest of the year... to enjoy the fruits of our labor"), I think "hmmm.... I've been enjoying things like safe food and water, regulated financial industries, a strong national defense, decent roads, excellent public parks, inspections of dangerous workplaces, and many other services paid for by my tax dollars."

Okay, I don't actually think that in those exact words. I really just ignore the idea because I find it absurd to imply that the money we pay in taxes is thrown down a rat-hole and brings us no benefit, and that we only start to "enjoy the fruits of our labor" after the taxes are paid. I've spent enough time in low-tax low-service states to know I prefer note to live there, and that I don't want the entire country to become that.

And though turn of the century Americans were not bedeviled by Paris Hilton, they also had some interesting additives in their sausage, as any reader of Upton Sinclair can tell you.

Anonymous said...

It is absurd to think valuable services currently provided by the government wouldn't be provided more efficiently by the free market and private charity. Competition and fear of civil suits are the primary motivation for suppliers and markets to keep food and other products safe, not government regulations.

Government bureaucracies by their very nature are inefficient, requiring an army of civil servants to administer them, eating up as much as 70 cents of the tax dollars we pay.

Runaway government spending is the primary cause of inflation, a huge hidden tax which robs our money of its value, yet among the current Presidential candidates only Ron Paul is talking about this issue. Additionally, it is a drag on the economy, representing 30% of GDP. Most federal spending is unconstitutional, forbidden by the 10th Amendment

Eric and Barry are also forgetting that we are forced to pay for these services at the point of a gun. If it is morally justifiable for the state to do this at all, it should be done for only the most basic and essential of services, whereas today it funds Marxist redistribution schemes, the narrow business interests of political contributors and foreign wars.