It isn’t often that we see a real, tangible result from the assorted bureaucrats, technocrats, plutocrats and republicrats that scurry around the halls of government. That probably explains why the various branches of the U.S. government get such low confidence ratings while the military, which thrives on concrete results, is at the top of the recent 2008 Gallup Annual Update on Confidence in Institutions poll. However, President Bush has delivered on one thing—he lowered oil prices by $9.26 per barrel. That is a 6.3% drop on the price of crude oil for August delivery.
How did he manage it? After months of insanely rising oil prices, trips to the Saudis to beg for relief, preening and posturing on the part of congressional leaders and members alike and grade-school style finger pointing by everyone involved, Bush finally remembered that he has some power as President and lifted the Executive Order his father put in place to stop oil exploration and drilling off of America’s coasts. In doing so, he challenged Congress to lift their moratorium when it comes up for renewal on September 30th. As if to demonstrate the affect that such announcements have on the futures markets, the price dropped, not after the announcement, but as the President was speaking. Now the ball is in Congress’ court.
They are balking now, that is to be expected, but the question is still open as to whether the Democratic leadership concedes defeat on what is, for them, an ideological question. The alternative would be for them to decide that ideology is far more important than the good of the people and so carry on in the face of hard proof that even threatening to increase supply will lower prices. You wouldn’t think that was rational, but ideological thinking is not rational. So, what if they do renew the ban? Will they have enough votes to override a potential presidential veto? Probably not, but you can never tell. September 30th is going to be an interesting day.
Still, it does seem to beg a larger question: If it has taken this long, with so much infighting, and people have had to go to so much effort, to get these people in Washington to do what is right for the people—as opposed to doing what is good for special interests or upholding a certain ideology—then why are we paying them so much of our hard-earned money? Honestly, if the government was a business, they would have failed a very long time ago.
Cost of Government Day
That question, what are we paying for, is particularly apt today. It is Cost of Government Day. According to Americans for Tax Reform (ATR), Cost of Government Day (COGD) is the date of the calendar year on which the average American worker has earned enough gross income to pay off his or her share of spending and regulatory burdens imposed by government on the federal, state and local levels. That means not just taxes, but the cost or regulation, the deficit, all the hidden costs of government at every level. This year, average Americans had to work 197 days just to meet all costs imposed by the various levels of government. That translates into government as a whole consuming 53.9% of the American income. In 2007, COGD was July 12th. In 2000, it was June 29th. To the folks at ATR, it means that the cost of government is rising higher than the national income.
Of course, that is the average American. The fact is that the state in which you live determines your real Cost of Government Day. July 16th is the overall national COGD, and that is matched by both Illinois and Colorado. If you live in Alaska, your COGD was June 21st. Other side of the coin, however is as follows:
- Wisconsin -- July 17
- Rhode Island -- July 17
- Virginia -- July 18
- Nevada -- July 19
- Hawaii -- July 19
- Florida -- July 19
- Minnesota -- July 20
- Maryland -- July 21
- Massachusetts -- July 21
- Washington -- July 22
- California -- July 23
- New York -- July 28
- Washington, DC -- July 26
- New Jersey -- July 30
- Connecticut -- July 31
The COGD Breakdown
The average American’s 197 days of government labor—it is really difficult to think of it as working for yourself—breaks down along spending and regulatory lines as follows:
- 83.7 days to pay for Federal spending
- 41.7 days to pay for Federal regulation
- 50.5 days to pay for State and Local spending
- 20.9 days to pay for State and Local regulation
How many more days do you want to work to support government spending and regulations? The dangers here are in the rising costs of current programs and regulations and the threat of new entitlements and additional regulatory burdens. It is estimated, for example, that the global warming regulations now before Congress, especially the cap and trade bills under consideration, would add an additional trillion dollars in regulatory costs.
Soak the Corporations
More regulatory costs? Corporations will pay them, not people! They make money hand-over-fist, so we can soak them!
Not really, you see if American corporations were any more “soaked” they would begin to dissolve. Corporate taxes in the US are 35%. Add in State and Local taxes and that means the average corporation here in the US is facing a 40% tax rate. As of 2007, the average corporate tax rate was 24%. This is essentially a self-imposed, self-destructive tariff that hurts our ability to compete on the world market, keeps these companies from creating jobs and further stimulates the flight of wealth from the US to foreign countries. As for the thought that it isn’t people who pay for excessive regulations, remember that, as a point of fact, corporations pay no taxes at all. Their customers do. In this way, corporations act as tax collectors rather than as tax payers.
Soak business and we just soak ourselves.
An Intelligent Tax Policy
Here, as with the energy question, we return to the shadowlands of ideology, where class warfare is the order of the day. That has to end. The United States, as a nation and as a people, cannot afford the luxury of ideology-driven policies any longer. It is time to see what has worked for the immediate and overall benefit of the American people in the past, judge the circumstances of those successes and replicate them. It doesn’t take a complex belief system; just a clear goal and a mind open to the lessons of history. So, what might these goals be? Here are a few that might be worthwhile:
- Increase government revenues to support public agendas.
- Lower energy costs.
- Stem the flood of American wealth going overseas.
- Increase the amount of foreign wealth coming to America.
- Increase investment in American business to create new businesses and new jobs.
How can you reach these goals? You need a tax policy that rewards success and supports prosperity. From success comes prosperity and from prosperity comes all sorts of good things like jobs, good wages, high government revenue and so on. Have we ever had that? Sure, quite a few times; the most recent being in the 1980s and the mid to late 1990s. What did these have in common? In both cases, governmental spending was cut—not just the growth of spending but the spending itself—and taxes were cut. The result? Deficits dropped or vanished altogether as the budget came into balance with higher income and lower spending, business flourished, good jobs were created, wealth came into the country, energy costs were low. American business was a hot-house of innovation and the overall standard of living was dramatically raised.
Of course, it wasn’t perfect. There were those whose fortunes went down even as those of the nation as a whole were rising; and there were those who took advantage of the situation to enrich themselves at the expense of others. Politicians who were not ideologically comfortable with the methods used to reach these levels of prosperity took hold of these issues and the environmental question and did what they could to raise taxes, increase regulations and, in general, flatten the economic landscape by “managing” the economy more and more. When that happens, taxes rise, spending rises, regulation rises and we all spend more days out of the year working for the government.
Some Specific Ideas
Many of us just got a so-called economic stimulus check from the Federal Government. That was nice. I am not sure it stimulated much of anything since so much of it went into the assorted gas tanks of the American people and to pay debts, such as student loans, owed to the government. Between that and the energy taxes the Feds impose, I am sure that Washington has gotten a lot of it back by now.
The point is that in spite of the pleasure we get from receiving a check from the government—as opposed to writing one to the IRS—such cash grants are very short term solutions to our economic woes at best, and fully useless at worst. Either way, they are not what we need to stimulate the economy. What we need is something we have not had since the income tax was written into the Constitution: A good, prosperity-oriented tax system.
There are many ways taxes can be reformed, from a simple flat tax to the so-called Fair Tax to something that may still have so-called progressive elements in it and yet serve to stimulate the economy rather than drag it down. The truth is that both the flat tax and fair tax are long shots. They don’t seem to redistribute enough wealth for some politicians and they eliminate government’s ability to do special favors through the tax code. After all, a 17% flat tax with no deductions or credits is not much to work with when you want to reward a major campaign donor. So, it is likely that some sort of graduated tax scheme will persist. History tells us that any reforms that are made to such a system have to reduce the cost of capital.
History Lesson: America, 2003
The Bush tax cuts were tiny compared with those of Ronald Reagan and John F. Kennedy, yet like their predecessors, they still had a major effect. By October, 2003, the Bureau of Labor statistics reported that more Americans were employed than ever before. This period also marked an increase in business investment. Orders for non-defense capital goods rose dramatically, the manufacturing sector improved and unemployment claims fell. Moreover, investor confidence was higher than it had been in a long time. Why? Because capital was no longer so expensive.
The Bottom Line
The 2004 Cost of Government Day was July 7th. In 2003 it had been July 11th. That is not a huge difference, just 4 days, but those days mean that the cost of government rose less than the tax revenue. In 2005, it was July 4th. There is the trend. With a prosperity-based tax code, Americans worked for themselves a little more each year and for the government, a little less. Public policy, especially as it pertains to taxation and regulation, has a direct effect on prosperity. The greater the taxes and regulation, the lower the prosperity. It is a simple formula that has played out time and again throughout our history, yet it is a lesson lost on so many.
Consider the preamble to our Constitution:
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
It doesn’t speak of parties and it has nothing to do with ideology. It is a simple statement that declares the purposes of government; to insure justice, peace and safety; to promote prosperity (the general welfare of the people) and to secure (not obtain, or strive for, but secure) freedom for ourselves and our descendants.
Is our government doing this? It can be argued that it is doing some of these things but certainly not all of them and that is where my problem begins. We are not getting our money's worth and a great many of those 197 days are simple waste. As long as ideology and political rivalry hold sway, the good of the people—the general welfare—will suffer. We have suffered from this in the matter of energy and gasoline prices, we have suffered in the matter of taxation and until We the People make our so-called public servants sit up and take notice, our suffering from their political games will continue.