Tuesday, May 29, 2012

Government Spending Part 1

After hours of reading letters they published, the Federalist Papers and the writings of those they quoted as influencing them; in my opinion - the Founders would be appalled at the nature of the federal government’s transformation and the squandering of the American legacy. America for nearly 200 years had a legacy of rugged individualism and self-determination.

No longer - the federal government has become the nation’s largest creditor, debtor, lender, employer, consumer, contractor, grantor, property owner, tenant, insurer, health-care provider, and pension guarantor. Its size and reach are vast. Its interventions seem to have no limit. I would not have enough time and pages to set out an all-inclusive examination of how the size of the Federal Government has grown. However, certain examples, both general in nature and common to daily life, should help prove the point to those who remain open to examining simple facts, reason and keen on liberty. Evidence of the massive expansion of government abounds everywhere and permeates everyday existence. It is really not that hard to see.


Among the ten tenets in The Communist Manifesto, Marx and Engels include “a heavy progressive or graduated income tax”. In America, the federal government imposes a staggering burden on a small fraction of taxpayers, as reflected in data released by the Internal Revenue Service for 2008.
  • The top 1% of income earners paid 38% of personal income taxes while earning 20 percent of pretax income
  • The top 5% of income earners paid 58.7% of personal income taxes while earning 34.7% of pretax income.
  • Meanwhile, the bottom 50% of income earners paid only 2.7% of the total tax burden while earning 12.75% of the total pretax income.
In other words, the top 5 percent of income earners paid the majority of the total tax burden and the bottom half of income earners paid almost nothing. Gross domestic product (GDP) represents the total value of all goods and services produced in the United States in a given year.
  • In 1930, the federal government spent 3.4% of GDP.
  • In 1937 and 1939, in the midst of the Great Depression, federal expenditures consumed 8.6% and 10.3% of the GDP, respectively.
  • During 1943 and 1944, in the midst of World War II, expenditures were 43.5% and 43.6%, respectively.
  • In 1948, after the war, the percentage dropped to 11.5%.
  • Throughout the 1950s and 1960s, federal expenditures as a percentage of GDP hovered between 15% and 17%.
  • During the 1970s and 1980s, these numbers ranged between 17% and 19%.
  • In the 1990s, the percentage varied between 15% and 19%.
  • By 2000 and 2001, there was a small drop to 14.8% in both years.
  • Starting in 2009, the percentage reached 21.1%— the highest percentage of federal spending since 1946 in the midst of WWII.
  • In 2010, federal expenditures jumped to 24% of GDP.
Moreover, at the end of 2008, the federal debt as a percentage of GDP was at 40 percent. In 2010, it jumped to over 60 percent. For 2011, the Congressional Budget Office (CBO) projects the federal debt will reach about 70 percent of GDP, the highest level since right after World War II, and it will exceed 100 percent of GDP very quickly. Shortly thereafter, “the growing imbalance between revenues and spending, combined with spiraling interest payments, would swiftly push debt to higher and higher levels.…”

Furthermore, the most recent estimate of total unfunded obligations (Social Security, Medicaid and Federal Government employee pension funds) in dollar terms— for which no money is currently available and will never be available— is $ 61.6 trillion. That is $528,000 per household. This includes $25 trillion in unfunded obligations for Medicare, $21.4 trillion for Social Security, and $9.4 trillion for servicing the debt (servicing the debt is a fancy word for interest we must pay).

The bigger government grows; the more regulations are implemented and a vast army of unelected government bureaucrats are given jobs managing the federal monster.

Congress has established a massive administrative state that serves essentially as a fourth governmental branch and exercises legislative, executive, and judicial powers. It employs an army of more than two million bureaucrats who work for an untold number of departments, agencies, bureaus, divisions, boards, etc. They are highly compensated, with average salary and benefits more than double what employees in the private sector earn.

The administrative state issues thousands of regulations and rulings every year, which have the force of law. The Competitive Enterprise Institute reported that the 2010 Federal Register, the official compendium of federal rules, totaled 81,405 pages, a record high. Since 2001, 38,700 final regulations have been promulgated. In 2010 alone, 3,573 rules were enacted by federal agencies. An evaluation by economists Nicole V. Crain and W. Mark Crain determined that private sector regulatory compliance costs amounted to $ 1.752 trillion in 2008, absorbing 11.9 percent of the total gross domestic product of the nation.  I want you to imagine that you are business owner (or if you are one); now imagine that 11.9 cents of every dollar your company earns goes to simply pay the cost of maintaining compliance with federal law. That is before you cover payroll, overhead, marketing & sales expense. Before you pay your taxes or even pay yourself. Regulations – Not Taxes – sucks $1.75 trillion dollars annually from the marketplace.

Moreover, The Heritage Foundation found that the number of criminal offenses in the United States Code increased from 3,000 in the early 1980s to 4,000 by 2000, to over 4,450 by 2008. But the total number of criminal offenses is actually unknown even to the federal government, which establishes them. “Scores of federal departments and agencies have created so many criminal offenses that the Congressional Research Service (CRS) [the research arm of Congress] … admitted that it was unable to even count all of the offenses. The Service’s best estimate? ‘Tens of thousands.’ … Congress’s own experts do not have a clear understanding of the size and scope of federal criminalization.”

Do we really need more laws and regulations – or do we need to get back to teaching our children and citizens morals, values, self-reliance and personal responsibility? (That is a subject for another post, but clearly related to this issue).

In recent months, and going back to the 2008 election; we hear time and time again our president stating “the rich folks need to pay their fair share”. Yet if we do the math – if the economy was back on a growth track of 4% GDP growth or even higher per year for the next decade – federal spending on entitlements would continue to outstrip revenues coming to the government. Put another way – we could tax the top 10% or even 15% of earners at a rate that would take 100% of their income; and we would still have a deficit. So… do we really have a problem with the rich not paying their fair share; or do we have a problem with spending?

This kind of class warfare Obama uses in his speeches and campaigns, pitting straw men against straw men, is now a routine and regular part of the American political dialogue. Yet, in practice, for the utopian it is better that all be poor than some be wealthy; that all suffocate from laws and regulations than some breathe free. But equality of this sort is not about freedom and liberty; it is really about an equality of outcomes — which is not the natural state of man. It is also not the America’s history. From the first settlers to today’s immigrants, America has rightly been considered exceptional— the land of individual opportunity, not the land of haves and have-nots. In America, the wealthy can fall and some do, and the poor can rise and some do. There is no bourgeois-versus-proletariat standoff but, instead, an immense prosperity born of an open society and economic market system that knows no class structure. However, the false sense of hope that President Obama espouses in his speeches comes from radical egalitarianism which incites jealousy (class warfare) among some if not many, divides and distracts the people, and furthers the chances of getting voters to vote for the promised hand-outs – which ends up granting greater control to certain politicians by changing the society’s psychology and national character.  The politician hooks them with financial bribes in the form of “entitlements.” And he makes incredible claims and promises for greater or even perfected health, safety, educational, and environmental policies. For these reasons and more, some become fanatics for the cause. They take to the streets and, ironically, demand their own demise as they protest against their own self-reliance and for even greater centralized planning/government and authoritarianism. When they vote, they vote to empower  more and more decisions to be made by the political elites and their experts, who substitute their self-serving and dogmatic policies — which are proclaimed righteous and compassionate— for the individual’s self-interests and best interests.

These - the politicians, judges, and bureaucrats— have become America’s version of Plato’s philosopher-kings and guardians, with obvious exceptions. As Plato wrote in the Republic,

“Philosophers because of the love of Forms [a perfect thing or being], become lovers of proper order in the sensible world as well. They wish to imitate the harmony of the Forms, and so in their relations with others they are loath to do anything that violates the proper order among people”. Moreover, only they are able to know “the Good” (the ultimate truth). They are wise and learned beyond the capabilities of the people they rule.

Does this not sound like the attitude or self-opinions held by many in elected office?

I don’t care about the party affiliation – I will vote for the candidate that will reduce the size of government, reduce taxation, and create a fiscal environment where the entrepreneurs, investors and banks will get off the sidelines and begin funding growth.

The Federal Government has become a leviathan – and it needs to be shrunk. It would be one thing if we could point to success in running the various entitlement programs or services successfully; but the track record is pitiful. There are very few programs or departments the government runs well at all.

No comments:

Post a Comment