2010 Sets Record for Cost of Government

Published August 18, 2010

The average American worker had to toil through the first 231 days of 2010—more than 63 percent of the year—to pay off the costs of their state, local, and federal governments. This leaves just under four and half months for Americans to provide for themselves and their families before the growing tab of the cost of government comes due again.

Every year, the Americans for Tax Reform Foundation and its Center for Fiscal Accountability calculate the day on which average Americans have paid off their share of the costs of federal, state, and local spending and regulations. This year that day falls on August 19, a full eight days later than last year’s date.

It is the latest Cost of Government Day ever recorded.

“The fact that Cost of Government Day falls in the later part of August is alarming enough. It is even more harrowing that the 2010 Cost of Government Day constitutes a 34-day jump from COGD just two short years ago, when it fell on July 16,” said Grover Norquist, president of Americans for Tax Reform. “This illustrates the ballooning growth of government, and should be of serious concern to taxpayers who are footing the ever-expanding bill.”

Federal spending, always the largest component of the cost of government, consumed 104 days of the average American’s life this year. The cost of sustaining state and local governments has likewise grown—taxpayers must work 52 days to pay off this burden, four days longer than in 2009.

$23.9 Billion in State Taxes Hikes
The growing insolvency of state budgets, coupled with exploding wages and benefits for government workers, continues to push the costs of state and local governments higher. These costs are supported by increasingly onerous tax regimes as state lawmakers refuse to cut spending to ease the burden of government. Across the nation, state taxes were raised by a net of $23.9 billion in FY2010.

In addition, although excise taxes on cigarettes and other less visible products were popular last year, states became bolder this year, with 12 states increasing income taxes by more than $10.7 billion in total.

States that pursue higher taxes to promote higher spending, however, see taxpayers leave in search of more friendly environments. The Cost of Government Day report not only details the migration of these taxpayers but also calculates the amount of income that moves with them.

Tax Migration
The nine states with no income tax—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming—provide a telling narrative. These states grew by more than 80,000 new residents in 2008, who brought with them more than $900 million in net adjusted income.

The states with the highest tax burdens—California, Connecticut, Hawaii, Maryland, New Jersey, New York, Ohio, Vermont, Wisconsin, and Pennsylvania—-lost approximately 129,455 residents and $10.2 billion of net-adjusted income in 2008.

This migration is not a recent phenomenon. Between 1998 and 2008, the 10 states with the highest tax burdens lost more than three million residents, who took with them $92 billion in income. In the same period the states with the lowest tax burdens gained 2.3 million new residents, who brought with them $92 billion in wealth.

Pensions, Healthcare Liabilities
Taxpayers also recognize the growing unfunded liabilities of health care and state pensions will eventually turn into higher taxes, and flee accordingly. Pension costs have been on the rise for years as politicians refuse to come to terms with the unsustainable promises made to unionized government workers.

Research shows more than half of total state and local outlays in 2008 were devoted to paying the wages and benefits of government employees—a $1.1 trillion payout. Aggressive market forecasts and a lack of political will to rein in pension costs have resulted in pension funds being overspent by as much as $3 trillion nationwide.

In addition, higher-tax states have higher unemployment rates, with the five highest-tax states having, on average, a 0.5 percentage point higher unemployment rate than those with the lowest taxes.

Spending, Transparency Reforms
Some states have made meaningful reforms to push costs down, specifically with regard to pensions. Illinois has raised its retirement age to the highest in the nation—67—and Utah has closed its defined benefits plan to new workers, switching employees to a defined contribution or hybrid plan. In Indiana, Gov. Mitch Daniels (R) reformed the state health care plan to include high-deductible insurance plans and health savings accounts.

States are also starting to let taxpayers keep a watchful eye on those doing the spending. Thirty-one states currently host spending Web sites that allow taxpayers to track the use of state tax dollars. Some states have adopted local transparency initiatives and even include school district spending in their portals. These efforts promote sustainable spending practices while producing real savings.

In Texas, for example, Comptroller Susan Combs (R) was able to use her state spending site to identify $8.7 million in savings. Putting spending data online for taxpayers to scrutinize made it easily accessible to state officials as well. Other states, such as Missouri and Kansas, have used their spending Web sites to eliminate contract redundancies and streamline travel expenses.

Although transparency is a good first step toward reducing wasteful spending, public pay and benefits remain unsustainable in many states, and spending will have to be limited if these states are to compete for the best and most productive individuals.

Mattie Corrao ([email protected]) is government affairs manager for Americans for Tax Reform in Washington, DC.