Does Government Spend Enough?

The solution to the problems in America is for government agencies to spend more money. At least that seems to be the widely held belief. From Keynesian stimulus packages to the War on Poverty, whenever something doesn’t work like the planners intend, it is only because not enough money was lavished on it. Since they have good intentions, what they are doing must be right, and good intentions are expensive.

How much is enough? Some people compare government spending to GDP and point out that U.S. proportion is below that of some other countries, so there is room for spending to grow. Others may say that families purchas their homes, which is good, with a significant portion of income going toward mortgage payment. Similarly, having a large portion of national income going to debt and interest service is not a bad thing either. These and other justifications for higher spending levels make the case at the aggregate, national level, and the numbers are really too big to get one’s mind around.

All government spending is ultimately borne by the individuals in society, whether it is paid for directly, in taxes or reduced incomes, indirectly, through inclusion in goods and services, or by taking it from future taxpaying individuals in the form of debt. Comparison of the spending of government at all levels with the income of the households of America gives another perspective.

According to the Bureau of Economic Analysis, an agency of the federal government, current expenditures of federal, state, and local government agencies totaled 5.66 trillion dollars for fiscal year 2013. The census bureau estimated that there were about 122.5 million households in the United States. That means that total current government expenditures at all levels for 2013 amounts to over $46,000 per household. The median household income for 2013 is not available, but for these purposes, the 2012 median of $51,371 will get us in the ball park. Therefore, government in the United States costs households almost 90% of their income.

While nobody pays a 90% tax rate, all of those costs are paid for by the people who work, by those who own investments and get profits, dividends, and interest, and by those people who buy things, which means everybody. A corporation or other business entity that pays taxes must necessarily pass them on to consumers or take them from the amounts it pays to owners and others. In other words, consumers, who are individuals, pay the business taxes in increased prices or shareholders and owners, who are individuals, pay them in reduced dividends and profits. In either case, the money is taken from individuals. Non-human entities are all relevant only as conduits for human benefits.

The question is then whether the people of society are getting their money’s worth. Yes, there is some value to public roads and schools, and it takes money to defend the country, but the reality is that the government shouldn’t be doing much of what it does. Many of the things government agencies do could be done much more effectively by private competitive enterprise. Worse than that, however, as government grows, it’s activities become harmful to the people. Not only does it displace private enterprise, it actively impedes progress, stifles innovation, and depletes and destroys real wealth of the people, trampling their rights in the process.

What is the right size of government? That is certainly open for debate, but is becoming clearer by the day that it is now far too large. The discussion needs to turn from what can government do to what should government stop doing.

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