Each year, I write about the Cost of Government Day – the day on which the average American has worked enough to pay his or her share of the government’s budget.
Now, the Cost of Government Day had never fallen past June 27 before our current president’s tenure. But for the sixth consecutive year, it’s fallen in July.
This time, the official date was July 6, as calculated by Americans for Tax Reform.
Ironically, I nearly missed the announcement this year, as it occurred on the same weekend we celebrated our independence from the high tax policies of King George III.
And while it’s easy to disregard this announcement, it’s significant for all of us. The cost of government impacts us regardless of our tax bracket, and even if we pay no taxes at all.
You see, the economy is like a backpacker climbing a mountain trail.
The cost of government acts like rocks in the backpacker’s pack, and with each new rock (tax), the hiker’s efforts become more arduous and difficult, thus slowing his progress.
Time to Cut the Fat?
In 1848, the brilliant philosopher, John Stuart Mill, wrote in Principles of Political Economy: “In all the more advanced communities, the great majority of things are worse done by the intervention of government, than the individuals most interested in the matter would do them, or cause them to be done, if left to themselves.”
Then, years later, economist Richard Rahn – the creator of the Rahn curve – postulated a connection between the rate of economic growth and the size and cost of government.
Rahn believes that there’s an optimal level of government spending as a share of gross domestic product (GDP). When a government is the right size, it maximizes its rate of economic growth. But when a government grows too large, economic growth becomes more difficult.
Rahn calculated that the optimum inflection point is when the government’s share of GDP is between 10% and 20%. Not coincidentally, from the signing of the U.S. Constitution until the 1930s, total U.S. government spending hovered around 10%.
In 2014, however, the government’s share of GDP has climbed over 50%. Our backpacker (the economy) can’t regain his momentum, and he’s struggling to make progress. You’ve probably noticed that the economy has been unable to reach pre-2008 growth levels. Instead, we’re having difficulty growing productivity, employment, corporate earnings, and personal income.
Basically, the economy is stalled, and the main culprit is an expensive and bloated government.
Of course, the government does have important tasks to complete. First, it protects us from enemies of freedom, both foreign and domestic. Additionally, the government helps us settle disputes between grieved parties, and it regulates the maintenance of our national infrastructure.
But recently, the government has taken on many roles that it’s incapable of handling. And after taking on so many nonessential jobs, the government is now failing to even get the basics right. Consequently, corruption amongst government officials is growing, and problems are widespread.
As Ronald Reagan wisely stated, “Government is not a solution to our problem, government is the problem.”
Your eyes on the Hill,