61 Percent of National Income Goes to Government

Published August 31, 2009

Americans this year had to toil until August 12 to pay for federal, state, and local governments, according to the annual Cost of Government Day (COGD) report by the Americans for Tax Reform Foundation and Center for Fiscal Accountability (CFA).

In 2009, government will consume a whopping 61.34 percent of national income.

Last year’s COGD date, July 16, was the fifth-latest in 32 years. This year, the day on which the average American worker has earned enough in cumulative gross income to pay off his or her share of government spending, including the often-forgotten cost of regulation, falls 26 days later than last year and 23 days later than the previous record-late date, July 20, 1982.

The largest component of the total cost of government, according to the report, is federal spending, which consumes 30.36 percent of national income this year and forces us to work through the first 111 days of the year just to pay for this component of COGD.

Spending Outstrips Income Gains

Writes study author Monika Ciesielska, “The driving factor for this development is that all components of the cost of government—federal spending, state and local spending, and regulations—are now increasing faster than national income, which shrank as a result of the financial crisis in 2008.”

Ciesielska blames the financial market bailout package, which created the Troubled Asset Relief Program, as well as the “stimulus” package passed earlier in 2009: “In conjunction with the FY 2010 Budget proposed by President Obama and passed by Congress, these spending bills set taxpayers up for a year when federal spending has reached a record 28.5 percent of GDP,” she writes.

Said Grover Norquist, president of Americans for Tax Reform, “This year’s shamefully late COGD is a frightening development for taxpayers, but unfortunately it is hardly a surprise. Over the past few months, Congress and the Administration have embarked on an unprecedented spending spree and have set out to fundamentally ‘change’—or expand—the role of government to reach even further into all spheres of our lives. If we continue down this road—and President Obama and Congressional leaders are at it with reckless abandon—next year’s COGD will likely move even further into the year.”

Alaska Takes Least, Connecticut Most

The dates for the states’ Cost of Government Days vary greatly. Alaska’s comes earliest, at 192 days (July 11), and Connecticut’s, as in previous years, does not arrive until much later, forcing workers in the Nutmeg State to work until September 7, a full 250 days.

California and New Jersey are the fourth- and second-latest states to mark COGD.

State assembly members Chuck DeVore (R-Irvine) from California and Jay Webber (R-Morris Plains) from New Jersey contributed case studies to this year’s COGD report illustrating the problems their states are facing. Writes Webber, “It is no mystery how New Jersey’s Cost of Government Day falls on September 6th, 25 days later than the national date: Bad policies and weak leaders.”

Residents Flee Burdens

Population migration patterns reflect the variances of state COGD dates, the study shows. States that continue to increase taxes are losing residents, while those that hold down taxes are gaining them.

The 10 states with the highest tax burdens lost about 441,000 residents and $12.8 billion of net-adjusted income in 2007 alone. From 1997 through 2007, the same states lost more than three million residents, who took with them a staggering $82 billion in income.

Webber confirms this trend for New Jersey: “Those crushing costs of government are forcing our families, neighbors, employers, and capital to flee to low-cost states,” he writes. “New Jerseyans are voting with their feet in crisis proportions, seeking escape from oppressive taxes and finding refuge elsewhere. New Jersey has had a net outflow of residents every year for the past 10 years. In the last six years alone, a net 300,000 people have left the Garden State with another 100,000 expected to flee in 2009.”

In contrast, between 1997 and 2007 the 10 states with the lowest tax burdens enjoyed an in-migration of 2.3 million residents. The influx provided those lowest-tax states with a cumulative real income gain of $88.7 billion between 1997 and 2007.

Heavier Burdens Could Come

In addition to the guest case studies, the scope of this year’s Cost of Government Day Report has been expanded to include a number of additional case studies exploring the possible effects certain policies have had or would have had on the 2009 COGD.

These include the Troubled Asset Relief Program (TARP), American Recovery and Reinvestment Act of 2009 (the so-called “stimulus”), energy cap-and-trade, prevailing wage requirements under the Davis-Bacon Act, taxation of foreign profits, and the recently floated value-added-tax idea.

Ryan Ellis of Americanshareholders.org believes it’s important to raise awareness of these issues in light of the challenges ahead.

“The cost of government is especially felt by shareholders, who find themselves crowded out of capital markets by the government’s fiscal and regulatory wedge,” Ellis said. “More days paying for government means fewer days used to grow wealth and create jobs.”

Sandra Fabry ([email protected]) is government affairs manager for Americans for Tax Reform and executive director of the Center for Fiscal Accountability, a project at the organization.

For more information …

Cost of Government 2009 Report: http://www.costofgovernmentday.org

Center for Fiscal Accountability, Americans for Tax Reform: http://fiscalaccountability.org