We Worked Until July 12 to Pay for Gov’t

Published September 1, 2006

The typical American this year worked until July 12 to earn enough gross income to pay his or her share of spending and regulatory burdens imposed by federal, state, and local governments, according to the annual Cost of Government Day (COGD) report issued by Americans for Tax Reform.

“The Cost of Government Day report has become a true measure of whether the conservative movement is achieving its goal of shrinking the size of government,” said Grover Norquist, president of Americans for Tax Reform, upon the report’s release July 12. “And this year’s report demonstrates that there is a lot more work to do at the federal, state, and local levels to prevent government from growing out of control.”

Heaviest Burden Since 1995

According to ATR’s analysis, this year’s COGD came one day later than last year’s. This year, Americans worked an average of 192.5 days just to pay for the costs imposed by government.

In 2006, the average American will need to work an additional 11.8 days to pay off his or her share of the cost of government compared to 2000, when COGD was June 29. The dramatic jump is attributed to slower economic growth, a recession, the war, increased spending, and corporate scandals.

Unlike the Tax Foundation’s Tax Freedom Day, which uses total tax collections to measure taxpayers’ burden, the Cost of Government Day factors in the cost of government regulations and government spending (the government spends more than it taxes) when calculating the burden on taxpayers. The cost of regulations includes direct costs of complying with the tax code and other regulatory burdens that businesses pass on to consumers.

State, Local Spending Rise

Two-thirds of the cost of government is due to federal spending and regulations, while state and local governments contribute about one-third. For the second year in a row, the cost of state and local government spending rose in 2006, to 44.6 days. After state and local spending declined in 2003 and in 2004, the increases of the past two years have brought spending as a percentage of national income back up to 2001 recession levels.

Taxes Cost Jobs

Even before New Jersey Gov. Jon Corzine (D) pushed through a $1.8 billion tax increase, the Garden State was leading all states in tax increases over the past six years. Since 2002, New Jersey has raised taxes by more than $17 billion, adding $1,951 to each resident’s tax burden.

The state lost 18,700 high-paying jobs in the information, financial activities, and professional and business services sectors from 2000 to 2005, according to “New Jersey’s New Economy Growth Challenges,” a report issued in July by Rutgers University economists James W. Hughes and Joseph J. Seneca. Hughes and Seneca show the state’s high-paying service-sector industries are leaving in search of cheaper labor and tax-friendly environments.

In the eight years prior, those sectors added 243,700 jobs in New Jersey, according to the report.

The COGD analysis and the Rutgers study confirm New Jersey’s deteriorating competitiveness is tied to its rising taxes and spending.

Idaho’s Tax-Cut Leader

A polar opposite of New Jersey is Idaho, which reduced taxes more than any other state in fiscal years 2002-2007. Idaho taxpayers saw their taxes drop by nearly $301 million during that period, amounting to a cumulative tax cut of more than $210 per person. Five other states–Arizona, Florida, Hawaii, Louisiana, and Wyoming–also cut taxes during that period.

“The large part of the tax reduction came from taking 1 percent off of the sales tax,” said Idaho state Rep. Phil Hart (R-Kootenai). “There was pressure to keep the 1 percent intact, but the driving force was that legislators had promised their constituents that it was a temporary tax increase and were afraid of the wrath for not living up to that agreement.”

Thanks to budget surpluses, at least 17 states, including Arizona, Oklahoma, and Rhode Island, cut taxes for the 2005-2006 fiscal year.

State, Local Outlook Grim

Although tax cuts are on the horizon in several states, the overall lesson of this year’s Cost of Government Day report is a warning about future state spending increases.

Economist Dan Clifton, author of the COGD study, explained the implications of the trends detailed in this year’s report: “With state and local spending relative to national income up 5.2 percent since its low in 1998, states must act to reform the pension and health care systems to avoid soaring costs and further tax increases. Without significant free-market solutions in place, taxpayers will see their Cost of Government Day creeping later and later.”

Elizabeth Karasmeighan ([email protected]) is state government affairs manager at Americans for Tax Reform.

For more information …

The “Cost of Government Day” report published by Americans for Tax Reform is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to http://www.heartland.org, click on the PolicyBot™ button, and search for document #19570.

“New Jersey’s New Economy Growth Challenges,” by Rutgers University economists James W. Hughes and Joseph J. Seneca, is also available through PolicyBot™. Search for document #19571.