Report: Cost of government consumes more than half of year's labor

Report: Cost of government consumes more than half of year's labor

by
Idaho Freedom Foundation staff
July 14, 2012
Idaho Freedom Foundation staff
Author Image
July 14, 2012

The overall cost of government in relation to gross domestic product (GDP) has dipped slightly this year compared to the past three years, but is still drastically higher than during any other point during the previous three decades, according to a new report by national low-tax advocacy group Americans for Tax Reform (ATR).

The report tallies expenditures at all levels of government, and includes an estimate of the costs of complying with regulations, in order to determine the "Cost of Government Day," when the average American has earned enough during the year to date to pay for the government's spending and regulatory burden. This year, according to the report, that day falls on July 15 for the average national worker, but on July 19 for the average Idahoan. That's how long it would take to pay for an overall government toll that consumes 54 percent of GDP.

"Cost of Government Day falls three days earlier than last year’s revised date of July 18. In 2012, the average American will have to work an additional 29 days to pay off his or her share of the cost of government compared to 10 years ago in 2002, when COGD was June 16," researcher Devin Bowen wrote in the report. "In fact, between 1977 and 2008, COGD had never fallen later than June 26. 2012, marks the fourth consecutive year COGD has fallen in July. The difference between 2008 and 2009—from June 23 to July 17—was a full 24 days. The increase was spurred by massive government intervention in the form of the Emergency Economic Stabilization Act (EESA) that created the Troubled Asset Relief Program (TARP) and passage of the American Recovery and Reinvestment Act of 2009 (ARRA)."

The fact that the Cost of Government Day falls well after the year's halfway point serves as a painful reminder to Rep. JoAn Wood, R-Rigby, of the difficulty she's faced in her legislative career keeping taxes and spending low, although she believes her efforts have met with a measure of success.

"I've been trying my whole career to keep the cost of government down," Wood said. "It's been an uphill fight, because if we have the money, we spend it. I'm not always happy with how we do that, even in the state government, and I'm way more unhappy with what the federal government does. Even though I criticize the state government for growing too fast and spending money where we probably shouldn't be, we're so much better than the federal government so that it's difficult for me to throw any spears at anybody."

The ATR report says that average Americans have to work 88 days to pay for federal spending, and slightly more than 40 days for state and local spending. The report's estimated costs for complying with regulation added another 69 days to the average American's total government burden. Although this national average adds up to about 197 days, average residents in every state considered separately would work anywhere from 180 to 222 days, depending on that state's relative government burden. An average Idahoan would clock in at 201 days of labor, higher than in 32 other states.

"The large contributors are federal tax and spending burdens," Bowen wrote. "These federal burdens vary because relatively higher burdens are borne by states with relatively higher incomes. State and local spending burdens vary as well."

This 2012 report revises data released in similar ATR reports from previous years because it considers the cost of government in relation to GDP, while previous reports used net national product (NNP) as the measurement of generated wealth. The use of GDP leads to more conservative estimates of government costs because the figure doesn't discount capital depreciation the way NNP does. Measured wealth is therefore higher, resulting in a lower estimate of the time it would take for average workers to cover government expenses.

Although measuring direct government expenditures is relatively straightforward, the report's measure of the cost of complying with regulations is more controversial. It notes that a change in methodology between the years 2008 and 2009 led to a large leap in the number of days an average American would work to meet the costs of complying with regulation, from the low- to mid-50s during 2002–2008 to the low 70s beginning in 2009. Because these periods of time are measured using different methods, the reported figures for those years aren't directly comparable.

The methodology used by ATR to measure the costs of regulatory compliance, based on the work of Lafayette College economists Nicole V. Crain and W. Mark Crain, has also come under fire from the Economic Policy Institute, a national left-leaning think tank, claiming that its "results are driven by a combination of poor data and a flawed empirical approach." Defenders of the Crains' methodology, though, have suggested that their estimate of regulatory costs is, if anything, far too conservative.

Randy Nelson, who has served for more than 22 years as president of Associated Taxpayers of Idaho, said that he hopes reports like this one will drive home the idea that government frugality is more important than ever during tough economic times. People need to be able to spend or invest more of their own money themselves, he said.

"The cost of government was growing pretty rapidly, a lot of the state governments were, when things were doing good in the economy and we could afford additional services," Nelson said. "But now, the way things are looking, it's a little different world we're working in. Folks would probably like to have that government, but they can't afford it anymore. The revenues are down for most states, including local government, so the adjustment is going to have to take place. It has, to some extent, but I don't think we're done yet."

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