Study: Government costs half a year of income

Americans for Tax Reform estimates that 192 days' worth of national income is needed to pay for government spending and regulations this year.

By Jeanne Sahadi, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Amid the ongoing debates about how to reduce the deficit and pay for expensive endeavors such as entitlement and tax reform, one group this week released its analysis of what government costs Americans today.

Americans for Tax Reform, a conservative group that opposes tax increases and advocates for a low flat tax, dubbed Wednesday, July 11, "cost of government day" for 2007, two days later than last year and 11 days later than in 2000.

That day is 192 days into the year and is theoretically the number of days it will take Americans to pay (from wages, profits, interest and other income) for all government spending and regulation.

Federal spending accounted for the biggest expense - costing Americans 84.5 income-producing days or 23 percent of annual national income, while federal, state and local regulations cost 61.8 days or 17 percent.

Government spending includes money collected from personal and business taxes as well as from deficit spending. Regulatory costs includes the cost businesses incur to comply with federal, state and local regulations.

Estimating government regulation costs is a difficult and controversial approximation to make, and critics contend ATR's estimate is misleading.

The group's estimate of regulatory costs does not include the economic costs of regulation (say, preventing a company from expanding because it can't afford to comply) or the economic benefits (implementing safety measures that save lives and reduce lawsuits).

Isolating the cost of regulation without also factoring in the social and economic benefits makes it seem like "it's money down the drain. It doesn't begin to make a positive contribution to what is a serious conversation about what the government does and how we should pay for it," said James Horney, federal fiscal policy director of the liberal Center on Budget and Policy Priorities.

"Paying for it" is a theme raised repeatedly when it comes to the Administration's 2001 and 2003 tax cuts. News this week that the Office of Management and Budget projects a reduced deficit for 2007 (which would make it the third consecutive annual decline) and estimates a 7 percent growth rate in 2007 tax receipts were greeted with cheers from supporters of making permanent the tax cuts. They assert the tax cuts have helped lower the deficit and spur economic growth, and by doing so have helped pay for themselves.

Critics of the tax cuts credit them for providing initial stimulus but contend their benefit is now reduced and does not compensate for their long-term costs to the budget.

Deficit hawks, meanwhile, were only moderately pleased by OMB's reduced deficit projections.

"It is always good to see the deficit coming down, but there is little about the current situation to inspire confidence that the trend will continue. The main engine of deficit reduction has been unexpected revenue growth and there are clear signs that this engine is slowing down to more traditional levels," said Robert L. Bixby, executive director of the Concord Coalition, a nonpartisan fiscal watchdog group, in a statement.

And, he noted, "spending restraint has been limited to non-defense domestic appropriations, which account for less than 20 percent of the budget. Nothing has been done to slow the growth of the major entitlement programs or defense spending. What this portends is a rising deficit not a smooth path back to a balanced budget."  Top of page