It is difficult to believe when ever you hear an American comment that we are not taxed enough as citizens. Whether it is Warren Buffet stating that American billionaires are not taxed enough, even though he gladly accepts his undertaxation every year, or a friend or relative who thinks that we should give the government even more of our wealth. They incorrectly believe that government can create jobs and that government is some kind of efficient, effective machine, something that readers of this blog and observers of government incompetence know is false.
Long ago Margaret Thatcher once said something to the effect: You cannot have political freedom without financial freedom. If you are so overburdened with government taxes, regulations, and fees that your choices of how to spend your wealth, where to send your kids to school, how much to give to charities, what kind of car or house you should buy, what kind of profession you should go into, etc. is dictated by how little of your wealth you have left after paying off the government, you are not living in a free country.
Under this definition of freedom, the linkage of taxation and freedom of choice, two recent research reports show how little freedom we still enjoy in this country. The first report is a 48 page, in-depth report from the organization, Americans for Tax Reform. They calculate the "Cost Of Government Day (COGD)," which is an estimate of how far into the year a typical American has to work to pay off their Federal tax burden, their state and local tax burden, the cost of Federal regulations, and the cost of state and local regulations.
Their latest estimates of COGD include the following highlights:
- In 2011, the report estimates that the average American works until August 12th before he or she has paid off all of the expense involved with government taxes and regulations.
- Since the Obama administration has taken over, the COGD has increase 29 days and 2011 marks the third year in a row that the COGD day has fallen in August. Prior to the Obama administration, the COGD day had never occurred as late as August.
- In 2011, the average American worked 103 days of the year just to pay off the Federal government's spending.
- Connecticut residents had the worse government expense burden in the country, working into September to get to their state COGD day. The other bad states included New Jersey, New York, Maryland, Wisconsin,Washington, Minnesota, California, Illinois, and Pennsylvania.
- Mississippi had the best COGD day, finishing up paying for their government obligations on July 19. Other states with shorter COGD days included Tennessee, South Carolina, New Mexico, South Dakota, West Virginia, Alabama, Arizona, Kentucky, and Nevada.
- Historically, the COGD for Federal taxes declined steadily during the Clinton Presidency and rose early in the Bush Presidency before leveling off at around 84 days a year. The Federal taxes COGD began escalating again in 2007, when Democrats took control of both houses of Congress, and really jumped up once Obama was in the White House in 2009, to its current level of 103 days. This is more than ten percent longer than the last year of the Bush Presidency.
- The report contains some detailed Congressional Budget Office (CBO) data that shows during the Bush Presidency, the ratio of Federal government spending to the nation's GDP ratio stayed quite constant year over year, about 20%, but accelerated during the Obama administration to the 25% level in the past three years.
- The CBO also estimated the relationship of the Federal government's budget deficit to the nation's GDP, a number that was usually in the 2-3% range. It declined in the latter years of the Bush administration but jumped dramatically to the 9-10% negative range in the first three years of the Obama administration.
- The report also includes Federal government personnel data from the U.S. Office of Personnel. This data shows that the number of Federal employees jumped by over 53,000 people just from 2010 to 2011, despite the fact the private sector job creation was virtually nonexistent and the economy's unemployment rate continued at extremely high levels. This translates to 14 million Americans unable to find a job. This one year hiring spree likely added billions of dollars to the Federal government's annual expense stream.
- Some of the Federal government's organizations had almost obscene hiring increases. The Department of Education increased its workforce by 8.5%, despite overseeing a public school process that severely under educates our kids, the Air Force increased its size by 6.6%, the State Department increased its personnel size by 5.4%, and the Health and Human Services Department increase its size by 5.0%. These numbers far outstrip the economic conditions and hiring going on in the rest of the country.
- The Federal Register is the know all and be all of Federal regulations since it contains every Federal regulation that is in effect. The size (number of pages) of the Federal Register in 2010 was the third largest ever, eclipsed only by the size of the Register in the last year of the Carter administration and the last year of the Clinton administration, both Democrats. The distressing aspect of 2010 is that the Obama administration has attained the third highest size of government regulations in just its second year, how large will it be by the end of the current administration?
- Historically, it usually took about 61 days for an average American to pay off the cost of Federal regulations. However, the COGD estimates that measure has increased to 77 days in just the first two years of the Obama administration.
Pretty depressing numbers. If true, these numbers show that we spend over half the year just to carry the burden of taxation and regulations that seem to increase every year. Remember, every dollar of wealth that is sent to all of our government levels is a dollar you cannot spend on your kids, your education and their education, charities you support, homes you live in, cars you drive, etc., a severe restriction on your freedom and life.
But are these numbers reasonably correct? Let's look at another data source and analysis. This comes form the Tax Foundation. The Foundation calculates its famous Tax Freedom Day every year, i.e. that calendar day when you stop working to pay your taxes and start working for yourself and your family. In 2011, the Foundation estimates that the average American works until April 12 to pay off their taxes, 102 days into the year.
At first glance this number does not seem to line up with the Americans For Tax Reform's numbers. Their work estimated that it took 103 days to pay off Federal taxes and 44 days to pay off state and local taxes, 147 days total. However, the Tax Foundation also estimates that it takes the average American until May 23rd to pay of both Federal taxes, state and local taxes, AND the Federal deficit. May 23 is the 143rd day of the year, putting it in line with the COGD for taxes.
The second validation of both approaches is the Tax Freedom Day calculations at the state level. The Tax Foundation estimates that the states with the worst Tax Freedom Days are Connecticut, New Jersey, New York, Maryland and Washington. The states with the best, least onerous Tax Freedom Days are Mississippi, Tennessee, South Carolina, Louisiana, and South Dakota. These best and worse lists from the Tax Foundation are almost identical to the COGD lists, reinforcing the assumption that both approaches are consistent, logical, and valid.
A few more observations about the Tax Foundation analysis:
- Their analysis shows that the average American family now pays more in taxes than they spend on groceries, clothing, and shelter COMBINED.
The 2010 May 23 Tax Freedom Day, including the Federal budget deficit, is up from May 2, the Tax Freedom Day the year before President Obama took over. Thus, in just three short years, the Obama administration has added three weeks to the tax burden of the average American.
- It is interesting that the states with the longest and worse COGDs and the longest and worse Tax Freedom Days are generally the same states that lost population and Congressional seats over the past ten years. If you take the nine of the ten states that lost Congressional seats as of the 2010 census, their average rank in the COGD analysis is 16.8. If you take the eight states that gained Congressional seats, their COGD average rank is 28.6, twelve positions better from a taxation perspective. [note: I have left Louisiana out of the calculations since their population loss was probably caused more by Hurricane Katrina and not their tax situation.]
- This last observation supports the belief that humans crave freedom, moving to states where they are more likely to keep their wealth, keep more of their freedom, and improve their lives.
Based on the hard numbers and analysis reviewed above, it is difficult to believe that any American is not taxed enough. The Federal, state, and local government spend too much, no matter how you measure it. If you are spending more than half of your working life supporting government bureaucracy and waste, something is wrong.
That is why we need to start systematically reducing government spending by 10% a year for five years. This approach would ease the downsizing of government's scope and waste, while somewhat quickly restoring our missing freedom. Working for the government until the spring or summer each year (depending on how your measure the burden) is no longer acceptable, especially given the meager return we get for the loss of wealth and freedom.
The words of James Dale Davidson seem appropriate: "The politicians don't just want your money. They want your soul. They want you to be worn down by taxes until you are dependent and hopeless. When you subsidize poverty and failure, you get more of both." Certainly feels likely America today, worn down, soul searching, and without a lot of our money and freedom.