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Willisms

« Quotational Therapy: Part 2 -- Founding Fathers, On Taxes. | WILLisms.com | Federal Tax Revenues Up. »

Cost Of Government Day.

April 15 is called "tax day" for obvious reasons; it is the deadline for filing income taxes with the IRS.

But the true "tax day" would take into account how many days one works to pay off the total tax obligation, a day much further into the year than mid-April.

How many days will you work this year to pay off your tax burden?

In 2004, according to Americans for Tax Reform, the day on which average Americans could finally start working for themselves rather than the government was July 7, a day earlier than in 2003.

In other words, working people must work 189 days out of the year (on average) just to meet all the costs imposed by government; the cost of government consumes 51.6 percent of national income (click here for the full .pdf report).

Take a look at how the President's tax relief staved off further increases in the number of days worked (click for larger version):

daysworkedforthegovernment.gif


Similarly, notice how, under a Kerry administration, the Cost of Government Day would have accelerated significantly (click for larger version):

daysworkedforkerry.gif

The liberal argument against President Bush's tax relief goes as follows:

Due to a series of tax cuts since 2001, middle-class Americans will save an average of $742 on their federal taxes this year. They will need it. Falling wages, exploding gas prices, soaring health care and education costs, rising food and energy prices, and increased state taxes to make up for gaping budget shortfalls are just some of the things Americans will need to pay for with their new money.

Let's address some of these points:

First, while it is easy to rattle off hyperbole like "exploding gas prices," creating an impression that inflation is out of control today, that simply couldnt be further from the truth.

Although keeping inflation under control should be a high priority for economic policy makers, even with the items cited above, inflation is not unreasonable:

Strong U.S. growth has put inflation pressures under the spotlight, but at the moment, they appear to be under control, Richard Fisher, the new president of the Federal Reserve Bank of Dallas, said on Wednesday.

Indeed, looking at Consumer Price Index data over the past century, we're seeing the same kinds of inflation rates that existed under booming economies. After all, a moderate level of inflation is necessary for a growing economy.


But, didn't Bush's tax cuts simply shift the burden onto the states, as John Kerry claimed during the 2004 campaign?

Not exactly.

ATR explains:

Opponents of tax cuts are losing the battle with voters and as such have started a new campaign to mislead American voters which claims cutting federal taxes has raised state and local taxes. The argument is based on the incorrect assumption that cutting federal taxes has resulted in less money for state and local governments. Nothing could be further from the truth. In fact, federal aid to state and local governments increased more than 37 percent in the first three years of the Bush Administration. Furthermore, aid to state and local governments has increased by an average of nearly 11 percent annually; nearly double the annual amount in the Clinton Administration.

federalaidaspercentageofstatelocalspending.gif

Much of the increased federal aid has been in Homeland Security dollars, but it is still incorrect to say that states are suffering because aid from the federal government has fallen precipitously.

The components of government spending break down like this:
costofgovernmentcomponents.gif

For whatever reason, the argument that cutting taxes at the federal level adds an unfair burden on the states seems to have a certain political resonance to it. People believe they will pay the same amount no matter what, so they might as well pay more to Washington and less to Austin or Sacramento or Albany.

Let's think about that one for a minute.

1. It is less efficient to redistribute wealth through Washington than through state governments. At the federal level, the large bureaucracies involved trim several more pennies off any given program dollar in the name of administrative costs than would happen at the local and state level.

2. When money goes to the federal government, it forms a new baseline of expected budget levels; as the government collects more money, there is a ratcheting-up effect. It is far easier for the government to increase spending than to pare it down.

3. Finally, shouldn't market forces drive tax policy? In other words, high-tax states like New York and Connecticut should have to compete fairly with low-tax states like Alaska and Alabama for corporate headquarters and other business activity.

Moving taxes and spending away from the federal government and toward the local and state governments, in our mobile society, would allow coporations, small businesses, entrepreneurs, and other workers to go where the optimal balance of government programs and low taxes exists, rewarding with growth states with low taxes, while punishing states with high taxes.

It's a basic free-market principle.

The capital will flow where it the market is most efficient.

Thus, it would be a good thing if states had to pay their own way more, not less. As of today, the federal government subsidizes fiscal irresponsibility at the state level, distorting market forces from making government more efficient.

Speaking of the different tax burdens in different states, see if you can spot the prevailing trend:

prejuly.gif

See the trend yet?

morethan190days.gif

And, just for reference, here are the rest, in the middle:

middlestates.gif

Is it any wonder that low tax areas are seeing the most growth?

According to the latest Census numbers, released on April 8, 2005,

Of the 100 fastest-growing counties, 60 were located in the South, 20 in the West, 18 in the Midwest and two in the Northeast.

The market in action.

UPDATE:

The Tax Foundation has more on what it calls "Tax Freedom Day," and comes up with slightly lower, but similar, numbers.

Posted by Will Franklin · 15 April 2005 12:41 PM

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