As Americans celebrated Independence Day this past summer, few probably realized that
it took nearly all the money they earned since New Year’s Day to pay their share of
the cost of government for 1996.
Cost of Government Day (COGD) marks the calendar date by which the average American has
earned enough, in gross income, to pay for all direct and indirect taxes for that year.
This includes total federal, state and local government spending plus the cost of
regulation. In 1996, COGD fell on July 3.
Americans spend just over half their year’s earnings to pay for government
services and regulations. Out of 366 days in 1996, the average American worked 184.6 days
(50.4 percent) to pay for government, leaving 181.4 days for him or her to earn enough to
pay for food, housing, clothing, transportation, education, health care, savings, and
Government provides needed services and plays a crucial role in defending the rights
and freedoms of citizens, and these things must come at a cost. However, many people now
question whether the cost of government is too high and whether government can perform its
core functions at less expense. Some even ask how free our society can be if over half of
its productive time per year is devoted to paying for the cost of governing it.
The Americans for Tax Reform Foundation’s annual attempt to answer this question
is Cost of Government Day. The aim of COGD is to draw attention to and spark discussion
about the size, scope, effectiveness, and cost of government in our country.
The total cost of government in 1996 is estimated to be $3.38
trillion–approximately $13,000 for every man, woman, and child in the United States.
Of this total, nearly $1 trillion is the result of federal and state regulation. The
federal government is responsible for more than $739 billion in indirect regulatory taxes
this year alone. That is more than $2,800 for every man, woman and child in the United
The 184.6 calendar days Americans will spend in 1996 working to finance government is
divided as follows:
51.2 days for state and local spending and regulations,
40.3 days for federal regulations,
32.1 days for other federal programs,
31.4 days for Social Security and Medicare,
15.5 days for national defense, and
14.1 days for interest.
Americans for Tax Reform Foundation relies on a numberof authoritative studies and the
government’s own statistics to calculate the annual cost of government. The main
source of government data is the U.S. Commerce Department’s National Income and
The framework for calculating the cost of regulations is derived from a 1995 report to
the U.S. Small Business Administration by Rochester Institute of Technology Professor
Thomas D. Hopkins, a leading authority on American regulatory costs. His figures are
augmented by estimates provided by other economists and consultants to the Foundation.
This year, Cost of Government Day arrives earlier than in recent years for several
reasons. First, defense spending cuts more than offset continued growth in social and
discretionary spending. Secondly, reform efforts in Congress have reined in the growth of
some federal programs.
Increasingly effective privatization initiatives at the state and local levels have
also contributed to COGD’s earlier arrival this year. Over 60 functions of Michigan
state government have been either privatized or evaluated for privatization (as of March
1, 1996), saving working men and women millions of dollars. (See MPR Spring 1996.)
Michigan posted the largest sale of any state-owned assetwhen it sold the Accident Fund
insurance company for $255 million in cash. (See MPR Spring 1995.)
Responsible government officials around the country and especially in Michigan use
privatization as a tool to provide high quality government services at less expense. Many
citizens, wary of increased government spending, are pressuring state and local officials
to control costs and are welcoming privatization as one way to do so.
Indeed, it is at the state and local level that officials get the most leverage from
privatization. Officials can use money saved from privatization to reduce the tax burden
of their citizens, or to improve or expand service in other high priority government
services. While controversial government cost-cutting ideas–balanced budget
amendments, flat tax rates, tax limitations–are debated in distant capitals,
privatization is being embraced as a practical, local tool.
Privatization is emerging as a bipartisan, good-government initiative, and it
is one way that local leaders can help make Cost of Government Day come earlier.
Few tools offer local government officials as much promise to maintain or increase the
effectiveness of government services while decreasing their cost. Privatization is
emerging as a bipartisan, good-government initiative, and it is one way that local leaders
can help make Cost of Government Day come earlier.