The Visible Burden of Government – Part 1

We have a good life. It is better than for many other people in the world.

Could it be better? Yes! I say that because our disposable income is a small portion of what we have and should get, and we can do something about it. We ought to keep more of what we earn. We must seriously rein in government.

In terms of how we have to spend our time and the income we earn, what are the detractors, aside from the price-hikes that manufacturers and retailers throw at us? We could complain about the price of milk or gasoline, housing or natural gas. However, perhaps there is something more worthy of complaint.

What makes up the burden?

Let us take the easy part first.

Base Fact

Median household income in 2006 was $48,201 and there are 109.9 million households. (From the Census Bureau )

Most people think of themselves as being in the 28% tax bracket, but the government's bite of your paycheck is not quite as bad as that. The median household “contributes” a mere 19% of its paycheck in personal income tax.

The rude part is that this is just a slice of the visible part of the burden of government.

The Full Financial Burden

The Visible Part

Table 1 – visible taxes for 2006

For those 109.9 million households, think about these financial facs from Whitehouse dot gov:

Description	Percent of income	Amount
Median household income		$48,201
Federal Income tax ($1,014,055M/109.9.M households)	19.14%	9,227
Payroll taxes (Social Security and Medicare)	7.65%	3,687
State and local taxes (from Tax Foundation dot org )	11.00%	5,302
Total visible taxes	37.79%	$18,216

When we look at our pay-stub, we see more. There are more government garnishments than income tax, Social Security, Medicare and Medicaid. In addition, there are state withholdings too. Moreover, when we look at our sales slips coming away from the cash registers in most stores, we see sales taxes. So we see that 19% is just a small part of what we can see. The long arm of governments takes almost 38% of what the earners in this household bring home.

However, it gets worse. There are hidden taxes. Much of it is added into the price of the products and services we buy. Some of it does not show up anywhere, unless we read the corporate report of the companies making everything we buy, and see what corporate income tax they pay. In addition, there are the fine print and end-of-life extras. Moreover, there is the continual devaluation of the dollar due to the money supply being increased faster than GDP growth (inflation). And businesses also pass on to us, in the prices, what it costs them to comply with government regulations.

The Hidden Part:

The taxes that government takes openly, revealed by pieces of paper that we prepare or which we receive from merchants, is just a part of the whole picture. Before we even see the pay-stub or receive our paychecks, (and again after we are dead) other amounts of money that is due us, is taken. Some of it shows up in the “fine print” that we never read from the cable or phone company.

There are other amounts taken by government that is built into the price of products and services that we buy. The businesses or individuals who provide the necessities of life do not let these takings reduce their profit to zero or incur losses from them. They pass these along to us in higher prices.

These costs include the corporate income tax, the employer's share of the payroll tax (Medicare and Medicaid), and the cost of complying with government regulations. Other portions shrink the value of our money or reduce our estate upon death.

Altogether, these remove another 32% of our income or wealth. These hidden sources of government revenue are more likely to increase than the visible taxes. They are easier for government to enact, precisely because they are hidden.

We have been told that government consumes merely 19% of GDP. Not so. The “Misery Index” published by Forbes dot com shows for 2006 that it is 25.5%. That is not all.

Table 2 – hidden taxes for various recent years

(Note: the following table has been updated since this was originally published, and research of this topic will continue, with the aim of assembling data on all parts for the same year. At the time of submission, the excise taxes actually collected and the cost of compliance actually incurred in 2006 were not obtainable. The next best available figures from reliable sources were used.)

Description	Percent of income	Amount
Median household income		$48,201
Corporate income tax ($354 billion/109.9 households from the U.S. Chamber of Commerce )	6.68%	3,221
Employer's share of Payroll tax (Social Security and Medicare)	7.65%	3,687
Excise and other taxes (from Whitehouse dot gov)	3.24%	1,561
Inflation (from Federal Reserve ), shrinking household net worth of $155,100 per year	3.2%	4,963
The cost of compliance with regulations (from House dot gov using their $600 billion total/109.9M households, which also referenced economists estimates of $810 billion and $1.7 trillion)	11.33%	5,459
Total hidden taxes	32.10%	$ 18,891

This paints a more complete picture. And the combined impact of what we see in table 1 and table 2 is this:

Table 3

Description	Percent of income	Amount
Median household income		$48,201
Total visible taxes	37.79%	18,216
Total hidden taxes	32.10%	18,891
Combined total of visible and hidden taxes:	69.89%	$37,107
What the median household has left to live on		$ 11,094

We threw out the imagined 28% tax bracket and re-started with 19%, then added up some other visible and hidden costs of government. We did not expect to end up being over two-thirds.

You could also look at this picture another way, the “total possible income” way, as the income you received originally plus all of these taxed-away amounts added back, including those not deducted from your paycheck or spent by you (even more indirect taxes – but money you should have received). This would be $48,201 plus the $5,459 built into the prices of goods and services due to regulations, and $3,221 for the corporate income taxes, plus $3,687 for the employer's share of payroll taxes, excises and other taxes of $1,561 plus the shrinkage of your net worth of $4,963.

Table 4

Description	Amount
Current median household income	$48,201
Corporate income tax	3,221
Employer's share of Payroll tax (Social Security and Medicare)	3,687
Excise and other taxes	1,561
Inflation shrinking household net worth of $155,100 per year	4,963
The cost of compliance with regulations	5,459
Total possible income	$67,092

That is a total income you can never see under our current system. We do get something back (which will be discussed in part 2). However, what we get from government are products and services we hardly get to choose. Perhaps we don't want all the regulations protecting us from ourselves, just the information that would enable us to make smarter choices. Perhaps we don't want our money spent on unnecessary projects in other states.

Moreover, the quality of what government provides has to be lower than with private and competitive offerings.

And finally, the value of what we get is estimated to be worth less than half of what we pay.

We have to begin to wonder if government is worth it. After all, we see in the news, day after day, stories about waste, government spending on things we individually do not want. And we wonder if it could not all be done more cheaply.

And there is more, perhaps not easily quantifiable, but still significant.

Part 2 comes in one week from today. Stay tuned.