The Real Cost of Government

Indiana property taxes have taken up so much attention in this legislative session—and rightfully so. Some are happy about the solutions that have been created. Some do not believe that it will help at all. Some wanted nothing done. Some wanted property taxes eliminated. Some blamed localities. Some blamed the state. Some blamed both. Most feel that we pay too much in taxes.

What is hidden in all of this discussion is where taxes are collected and where they are spent. The average taxpayer is painfully aware of sales taxes and property taxes. In April they are somewhat aware of income taxes—particularly if they owe taxes. First time workers get a shock when they cash their first check and discover that some guy named FICA got a bunch of their money. Many more taxes, however, are hidden from view.

If you rent, you pay property taxes in your rent. When you buy gas, each gallon contains significant taxes. The hamburger that you buy contains the cost of business taxes (income, property, FICA, and many more) buried into it. Not to mention that in many localities there are sales AND food or restaurant taxes included. Because of the nature of these invisible taxes, it is unclear which government body is responsible for those taxes.

Let’s trace where your taxes are spent:

Be amazed below the fold.

It has been well publicized that property taxes pay for local government. So when property taxes go up (or down) it is because of local governments, right? Not necessary. For years, the Indiana State Government has subsidized the localities in the form or property tax relief. One of the reasons for the current property tax “crisis” came about because the State Legislature limited the relief to $2 billion. By the way, that is about $300 for each man, woman and child in the state.

The Indiana State Government does not raise all of its own funds, either. In the 2007 to 2009 biennium, the State of Indiana will receive $15.7 billion from the Federal Government. This is about $1,250 for each man, woman and child in the state each year. To put this into context, this makes up 33.4% of the anticipated state revenues during this biennium. It is not just that Indiana’s Congressional delegation or the Governor is that effective to get huge amounts of money from the Federal Government. The Federal government is spending about $447 billion on “aid to states” programs in Fiscal Year 2007.

The cumulative state spending across the United States is approximately $1.2 trillion (about $4,000 per man, woman and child). This means that, on average, 37% of our States’ budgets are coming from the Federal Government.

My point in bringing up all of this is that it is very difficult, in our current tax environment, to understand who is responsible for spending our money. It is imperative that we understand what our governments are spending. According to U.S. Government Spending, in Fiscal Year 2008 the Federal Government will spend $2.9 trillion. States will spend $1.2 trillion. Localities will spend $1.5 trillion. This totals $5.6 trillion, but $523 billion is transferred from one government level to another. This makes the total cost of government $5.1 trillion.

This is 36% of GDP or $20,333 for every man, woman and child!

All combined, State and Local governments are as big as the Federal Government. But the solutions must come at every level of government. The Aid to States programs actually has caused State and Local governments to become bloated. The Indiana State Government subsidies of local governments have allowed local governments to become bloated without taxpayer revolt.

In the Federal Government, we must stop the insane Aid to State process (not only “earmarks”). We need to stop spending on unconstitutional things like the Ad Council or the Public Broadcasting System. At the State level, we need to learn to cut spending. We need to learn to refuse various Federal financing, particularly when it causes us to create State programs that take up resources in order to get other resources from the Federal Government. At the local level, we must learn to cut spending on local programs. We need to learn to spend our money more effectively.

You look for fiscal conservatives to elect to Congress. How about fiscal conservatives on the School Board?

Sources:
Property Tax Relief
State Budget Revenue Sources–See page 3
Federal Aid to States
Overall Government Spending