Cost of Government Day

COST OF GOVERNMENT DAY
2011 REPORT
Americans for Tax Reform Foundation / Center for Fiscal Accountability 722 12th Street, NW, Fourth Floor Washington, DC 20005 (202) 785-0266 F: (202) 785-0261
Cost of Government Day 2011 2011 Americans for Tax Reform Foundation / Center for Fiscal Accountability Published by: Americans for Tax Reform Foundation / Center for Fiscal Accountability 722 12th Street, NW, Suite 400 Washington, D.C. 20005 Phone: (202) 785-0266 Fax: (202) 785-0261 www.atr.org www.fiscalaccountability.org For more information, contact ATR Communications Director, John Kartch jkartch@atr.org Jacob Feldman, Author Designed by Instinct Design, LLC. Fairfax, VA
Americans for Tax Reform Foundation (ATRF) performs research and analysis in order to educate taxpayers on the true causes and effects of legislation and regulatory affairs. ATRFs efforts inform debate, initiate conversation, and emphasize the importance of fundamental tax reform and spending restraint. In addition to the Cost of Government Day Report, ATRF also produces and publishes the International Property Rights Index and the Index of Worker Freedom. The Center for Fiscal Accountability (CFA), founded in 2008, is a joint project of Americans for Tax Reform and Americans for Tax Reform Foundation, a national taxpayer advocacy organization. Acknowledging that the American people and its economy can best thrive and prosper when the role of government is limited and subject to scrutiny by taxpayers, the Center for Fiscal Accountability seeks to shed a light on government expenditures and to promote transparency, accountability and restraint in government finance. Funding for the Cost of Government Day Report is provided by the Americans for Tax Reform Foundation.
TABLE OF CONTENTS
About the Author ............................................................................................................................2 The Thomas Jefferson Fellowship ....................................................................................................2 A Message From Grover Norquist and CFA Executive Director Mattie Corrao ................................3 Overview of Results ..........................................................................................................................4 Cost of Government Day Components ............................................................................................5 State by State Breakdown..................................................................................................................7 The Government Spending Burden ..................................................................................................9 Federal Spending ......................................................................................................................9 Special Focus: Spending and the Federal Budget Deficit ........................................................10 State and Local Spending ......................................................................................................12 State Tax Increases ..........................................................................................................................13 Government Employees..................................................................................................................15 The Regulatory Burden ..................................................................................................................18 Case Studies....................................................................................................................................22 A Continuing Case Study: TARP and AARA ........................................................................22 The Patient Protection and Affordable Care Act (PPACA) ....................................................23 Dodd-Frank............................................................................................................................26 Environmental Protection Agency (EPA)................................................................................30 Interstate Taxation ..................................................................................................................34 Post-Office Reform ................................................................................................................35 Federal Takeover of Tax Preparation ......................................................................................37 Concluding Remarks: The Path Towards an Earlier Cost of Government Day ..............................38 Methodology ..................................................................................................................................40
ABOUT THE AUTHOR

This report was authored by 2011 Thomas Jefferson Fellow Jacob Feldman. Jacob holds a double major B.A. in Economics and Jewish Studies after accelerating graduation from the University of Virginia in three years. He is currently a second year Mercatus M.A. Fellow in the Department of Economics at George Mason University. His primary research interests include federal tax policy, budget issues, and regulatory policy. As of 2011, Jacob co-authored two Mercatus working papers and presented a solo-authored paper on the labor economics of post-Soviet mass immigration to Israel at the 2011 Association for Private Enterprise Conference in the Bahamas. In 2010, Jacob wrote briefs on the 2001 EGTRRA and 2003 JGTRRA tax cuts at the Heritage Foundation. Other occupation opportunities have included the Koch Summer Fellowship Program, a budget fellowship with Congressman Diane Black, the Miller Center for Public Affairs, and the Crystal Ball publication at Larry Sabato's Center for Politics. In May 2009, he began work at Americans for Tax Reform as an associate for the Tax Policy Director. He was awarded the Thomas Jefferson Fellowship in May of 2011.
THE THOMAS JEFFERSON FELLOWSHIP

The Cost of Government Day Report is published in the context of the Thomas Jefferson Fellowship, a program run by the Center for Fiscal Accountability (CFA). CFA offers this fellowship to a graduate or highly qualified undergraduate student with a background in the field of economics interested in the areas of federal and state fiscal and regulatory policy. The fellowship is named after one of the most influential thinkers in American history, and one of the leading proponents of accountable government Thomas Jefferson, Founding Father and third president of the United States of America. Acknowledging that the American people and their economy can best thrive and prosper when the role of government is limited and subject to the scrutiny of taxpayers, the Center for Fiscal Accountability seeks to shed light on government expenditures, and to promote the Jeffersonian ideals of fiscal accountability, fiscal restraint and free market principles. The aim of the fellowship is to offer a student the opportunity to work independently in the area of federal and state fiscal and regulatory policy and in collaboration with prominent experts and institutions in the field. The primary task during the fellows time is to craft CFAs hallmark study, the Cost of Government Day Report.
COST OF GOVERNMENT DAY 2011 REPORT
A MESSAGE FROM GROVER NORQUIST AND CFA EXECUTIVE DIRECTOR MATTIE CORRAO
his year, Cost of Government Day (COGD), the day of the calendar year on which the average American worker has earned enough gross income to pay off his or her share of the spending and regulatory burdens imposed at the federal, state and local levels, falls on August 12.
This marks a slight, but likely temporary, reversal in trends from previous years. Prior to 2009, COGD had never fallen later than July 21. However, upon taking office President Obama authored an 84 percent jump in discretionary spending and pursued an aggressive regulatory agenda. As a result, the last two COGDs have fallen in August; this years COGD marks the first time since the start of the Obama Administration that COGD has fallen earlier than the previous year. However, COGD comes only two days earlier than last years revised date of August 14. This small step towards an earlier Cost of Government Day is likely temporary. The coming implementation of regulatory behemoths that will also cause federal spending to skyrocket augur a dismal future for taxpayers. The implementation of the Dodd-Frank financial regulatory overhaul, coupled with adjudication of the Patient Protection and Affordable Care Act, portend far later COGDs in the future. However, taxpayers have reason to hope the escalating cost of government may not be inevitable. After working through half of the fiscal year without a budget, Congress authorized FY2011 funding levels that cut almost $40 billion from the previous years spendingthe first time a continuing resolution has done so. Whats more, after refusing to pass a budget the previous year, the House of Representatives approved a spending plan that would cut nearly $6 trillion from spending baselines over the next decade while reforming the ballooning entitlement liabilities. The battle on the size of government, however, seems to just be beginning. The debate over the countrys debt has precipitated remarkable scrutiny of government spending. The discussion of the governments overspending problem has shifted from billions to trillionsa significant step towards coming to terms with the countrys fiscal recklessness. Barriers to an earlier COGD remain. As of this writing, a deal to raise the debt limit in exchange for significant spending reform has not been reached. As the country exhausts its nearly $15 trillion in borrowing authority, the evolving debt debate represents an unprecedented opportunity to shift the paradigm of government spending. If it fails to do so, the forecast for future Cost of Government Days looks bleak. Onward,
Grover Norquist President Americans for Tax Reform Foundation
Mattie Corrao Executive Director Center for Fiscal Accountability
OVERVIEW OF RESULTS
Definition
Cost of Government Day (COGD) is the date of the calendar year on which the average American worker has earned enough gross income to pay off his or her share of the spending and regulatory burden imposed by government at the federal, state and local levels. Stabilization Act (EESA) that created the Troubled Asset Relief Program (TARP) and the American Recovery and Reinvestment Act of 2009 (ARRA). The two day decrease of the 2011 COGD is only a temporary fall before projections of increased future spending. In March 2010, President Obama signed the Patient Protection and Affordable Care Act (PPACA) into law which will add $2.3 trillion to COGD over its first decade. Even without counting Obamacares contributions to future COGDs, the three years of the Obama Administration have been three record-setting years of federal government regulation and spendinga 21.78 percent increase relative to the average size of the federal government between 1977 and 2008.
1
Cost of Government Day 2010

Cost of Government Day for 2011 is August 12. On average, workers must toil 224 days out of the year just to meet all costs imposed by government. In other words, the cost of government consumes 61.42 percent of national income.
Cost of Government Day: Trends

Cost of Government falls two days earlier than last years revised date of August 14. In 2011, the average American will have to work an additional 41 days to pay off his or her share of the cost of government compared to ten years ago in 2001, when COGD was July 2. In fact, between 1977 and 2008, COGD had never fallen later than July 21. 2011 marks the third consecutive year COGD has fallen in August. The difference between 2008 and 2009from July 16 to August 14was a full 29 days. The increase was spurred by government intervention in the form of the Emergency Economic
Additionally, 2011 COGD estimates are premised upon CBOs ambitious 2011 calendar year estimate of 3.7 percent GDP growth. CBO numbers may overestimate annual growth because first quarter growth was limited to just 1.8 percent while real wages, durablegoods orders, manufacturing production, home sales, and real percapita disposable incomes have been in decline since April. Therefore, the estimate in this report may significantly underestimate the real cost of government for 2011.
2
Cost of Government 1977-2011

8/14 8/14 8/12
7/21 7/20 7/16 7/7 7/9 7/10 7/12 7/10 7/4 7/4 7/8
7/19
7/17 7/12 7/13 7/10 7/5 7/2 7/2 7/10 7/8 7/9 7/7 7/7 7/8 6/29 6/28
7/16
7/6 6/30 6/26
7/4
COST OF GOVERNMENT DAY COMPONENTS

Federal Spending
The average American worker will have to labor 103 days just to pay for federal spending, which consumes 28.15 percent of net national product. Last year, individuals had to work 105 days to pay off federal spending and 102 days in 2009. The decrease from 2010 may be attributed to reaching the peak of stimulus spending as well as renewed efforts to cut spending at the opening of the 112th Congress. Coupled with the longest recession since the Great Depression, federal spending as a share of the national economy remains at a three-year high since the first COGD report in 1977. Between the end of 2008 and today, the Obama Administration has increased federal spending by 13 Cost of Government Days.
State and Local Spending

Likely due to increased federal assistance, independent state and local spending has decreased since 2008. In 2011, the average American has to work 44.2 days to pay for state and local expendituresroughly the same number of days in 2010 and one day less than the 45.4 days worked in 2009.
Regulatory Costs
The average American must labor 77 days in 2011 just to cover the cost of government regulationsidentical to the 77 days worked in 2010 and slightly less than the 79 days worked in 2009. 2011 regulations will consume 21.2 percent of net national product which, compared to 16.1 percent ten years ago in 2001, is a 31.6 percent increase in the regulatory burden within only 10 years.
Cost of Government Day Components
49.75 days worked to pay for federal regulations 44.16 days worked to pay for state and local spending 27.6 days worked to pay for state and local regulations
102.83 days worked to pay for federal spending
STATE BY STATE BREAKDOWN
The calculation of the Cost of Government Day for each state is based on the varying government burdens suffered in each state. Federal tax and spending burdens are large contributing factors. These federal burdens vary because relatively higher burdens are borne by states with relatively higher incomes. State and local tax and spending burdens vary as well.
As in previous years, the latest Cost of Government Day is in Connecticut, with the average worker toiling all the way until September 10 (twenty nine days past the national average) to pay off all the costs of government. The dubious honor of second place is held by New Jersey, with COGD falling on September 6. New York follows right behind on August 30, with Maryland maintaining fourth place for the second year in a row at August 20.
2 2011 Cost of Government Day for States

CT NJ NY MD DC WI WA MN CA IL PA MA WY RI VA NE ND FL VT UT KS DE NH OR CO TX MI OH NC IA HI MT IN MI ME ID GA AR AK OK NV KY AZ AL WV SD NM LA SC TN MS
State
Rank in 2010
Rank in 2011
# of Days Worked
State COGD
Mississippi Tennessee South Carolina Louisiana New Mexico South Dakota West Virginia Alabama Arizona Kentucky Nevada Oklahoma Alaska Arkansas Georgia Idaho Maine Missouri Indiana Montana Hawaii Iowa North Carolina Ohio Michigan Texas Colorado Oregon New Hampshire Delaware Kansas Utah Vermont Florida North Dakota National Average Nebraska Virginia Rhode Island Wyoming Massachusetts Pennsylvania Illinois California Minnesota Washington Wisconsin District Of Columbia Maryland New York New Jersey Connecticut
3 6 10 1 6 4 6 8 14 10 8 21 1 10 27 27 14 14 21 18 32 14 24 27 27 18 33 27 21 33 24 35 40 18 10 24 40 38 35 44 40 35 44 40 46 38 47 48 49 50
1 2 3 4 4 4 4 8 8 8 8 8 13 13 13 13 17 17 19 19 21 21 21 21 25 25 27 27 29 30 30 30 30 34 34 36 36 38 38 40 40 42 43 43 43 43 47 48 49 50
200 201 204 207 207 207 207 210 210 210 210 210 211 211 211 211 213 213 214 214 216 216 216 216 217 217 219 219 220 221 221 221 221 223 223 224 224 224 226 226 227 227 229 230 230 230 230 230 232 242 249 253
19-Jul 20-Jul 23-Jul 26-Jul 26-Jul 26-Jul 26-Jul 29-Jul 29-Jul 29-Jul 29-Jul 29-Jul 30-Jul 30-Jul 30-Jul 30-Jul 1-Aug 1-Aug 2-Aug 2-Aug 4-Aug 4-Aug 4-Aug 4-Aug 5-Aug 5-Aug 7-Aug 7-Aug 8-Aug 9-Aug 9-Aug 9-Aug 9-Aug 11-Aug 11-Aug 12-Aug 12-Aug 12-Aug 14-Aug 14-Aug 15-Aug 15-Aug 17-Aug 18-Aug 18-Aug 18-Aug 18-Aug 18-Aug 20-Aug 30-Aug 6-Sep 10-Sep
7
In addition to showing state rankings for COGD in 2011, the largest changes in cost of government days and overall ranking since 2010 are highlighted.
Top 5 2011 Increases COGD by Rank
5 Largest COGD Increases Relative to National Average
North Dakota Florida Alaska Nebraska New Hampshire
24 16 12 12 8
Alaska North Dakota Florida Louisiana Nebraska
11 8 7 6 5
Top 5 2011 Decreases COGD by Rank
5 Largest COGD Decreases Relative to National Average
Georgia Idaho Oklahoma Hawaii Vermont
-14 -14 -13 -11 -10
Georgia Idaho South Carolina Tennessee Oklahoma/Vermont
-10 -10 -10 -10 -8
THE GOVERNMENT SPENDING BURDEN

Federal Spending
Federal spending continues to be the single largest component of the total cost of government and the main driving force leading to the substantial increase in the cost of government over the last decade. Record-breaking costs of government were driven by provisions of the Emergency Economic Stabilization Act (EESA) of 2008 and the American Recovery and Reinvestment Act (ARRA) of 2009 in conjunction with limited economic growth. The average American will have to work 103 days just to pay for the cost of federal spending, which will consume 28.2 percent of net national product this year. This is a jump of over 23 days compared to ten years ago in 2001 and over 13 days compared to 2008. Federal spending relative to the economy has increased by 29.1 percent since 2001. .
Days Worked for Federal Spending
After only 28 days in office, and only 13 days after his first tax increase on middle-income Americans, President Obama signed the $821 billion American Recovery and Reinvestment Act into law. Shortly thereafter, Obama signed the Omnibus Appropriations Act of 2009 on March 11, a $410 billion piece of legislation with over 9,000 earmarks. Coupled with TARP bailouts for only certain firms, the Obama Administration fostered economic uncertainty for businesses, financial institutions, and banks awaiting the federal governments next move to either help or hurt competitors. ARRA and TARP receive greater examination in the Case Studies section of this report.
3
trillion (and increasing thereafter), President Obama and a Democrat-controlled Congress increased Washingtons spending problem indefinitely. While the tax hikes to fund Obamacare took effect almost immediately, spending under the plan doesnt begin until 2014. The effects of PPACA will also be discussed in the Case Studies section of this report. Policy changes such as ARRA, TARP, and Obamacare have hampered business investment. When downturns in business cycles occur, businesses need time to recover and reinvest without fear of rapidly rising debt and higher taxes, health care and financial costs, and increased regulatory burdens. The economic dilemma of the stimulus plan is not only how many jobs were saved, but whether the benefits of those jobs were 1) worth the opportunity cost of at least
4
March 2010 oversaw the enactment of The Patient Protection and Affordable Care Act (PPACA). Estimated at a first decade cost of $2.3
$170,000 per job and 2) worth the cost of delayed business recovery due to economic uncertainty surrounding federal interventions.
5
Greater uncertainty about higher taxes follows businesses as government spending continues to skyrocket. In only ten years, federal spending increased from $1.980 trillion in 2001 to an estimated $3.789 trillion for 2011 (an increase of 91.4 percent). Accelerated spending under the Obama Administration has led to the three largest deficits in United States history: $1.477 trillion (2009), $1.512 trillion (2010), and $1.615 trillion (est. 2011). These spending sprees constitute the largest deficits as a percentage of GDP since World War II. In the past three years alone federal debt has increased by nearly 80 percent, compared to an increase of 25 percent over both terms of the previous Administration. Debt now stands at its highest level since 1950.
6 7
However, national debt at a certain threshold is correlated with negative economic growth. A 2010 study by Reinhart and Rogoff found that, Median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower. As long as Obama oversees deficits over $1 trillion annually, the rapid pace to 90 percent becomes increasingly evident. Even if Obama and Congress do not enact more major spending plans and projected marginal tax increases are prevented, the federal debt is on track to reach 101 percent of GDP by 2021. Incorporating state and local debts, US debt is already 92 percent of GDP. Whether the debt is federal or local, interest payments tie down resources and slow down economic growth.
8 9 10
From November 2011 to April 2011, seven short-term continuing resolutions were passed until a full year appropriations bill could be agreed upon in April 2011. Despite significant resistance, $38 billion was cut in the budget negotiations. Although $38 billion is estimated to be only 1 percent of all federal spending in 2011, it is the largest cut to enacted spending in recent US history.
The 2011 federal deficit is expected to more than triple in size compared to 2008jumping from $461 billion to almost $1.615 trillion. This means that the deficit relative to GDP will balloon from 3.2 percent in 2008 to 9.8 percent at the end of 2011.
11
Special Focus: Spending and the Federal Budget Deficit

Given the explosive spending growth of the past three years, the federal deficit has received a significant amount of media attention. The more relevant and pressing numbers for understanding the size of government are the levels of federal spending and federal taxes. The deficit is not a major driver of economic performance. Taxes, and the total burden of government spending, are the major factors affecting the economy as they determine the incentives for saving, investment, entrepreneurship, and employment.
The presumption that spending will average 23.2 percent of GDP for the next ten years is premised upon economic growth averaging 4.71, even though the annual growth rate from 1948 to 2010 has only been 3.28 percent. If nominal spending estimates remained constant, while economic growth was constrained by historical averages, federal spending as a percentage of GDP would consistently rise every year to 27.6 percent by 2021.
12
Keeping spending in check is the only way deficit concerns can ever be ameliorated. Tying federal spending to growth in net national product or the consumer price index (CPI) would be one solution. If federal spending had been chained to net national product, then $4.541 trillion in spending would have been prevented from 20012010. Tying federal spending to the CPI would have generated $8.442 trillion in savings and would have produced a $1.712 trillion surplus over the last ten years.
13
10
Federal Spending and Budget Deficit/Surplus as a Percentage of GDP FY 2000-2021
25.0 19.1 19.7 19.6 19.9 20.1 19.6 20.7
23.8
24.7
23.3
23.1
23.0
23.1
23.5
23.4
23.3
23.7
23.9
24.0
18.2
18.2
Deficits
2.5 1.3 -1.5 -3.4 -3.5 -2.6 -1.9 -1.2 -3.2 -8.9 -7.0 -9.8
Spending
-4.3 -10.0
-3.1
-3.0
-3.4
-3.1
-2.9
-3.2
-3.2
-3.2
Source: Congressional Budget Office, The Budget and Economic Outlook: Fiscals Years 2011 to 2021
Federal Spending Constrained by Economic Growth ($billion)
521 270 147 147 147 39 86
578 453
93 -1 -248 -408 -504 -421
-65
-13 -143 -221 -422 -553 -132 -311 -316 -531 -150 -292 -418
-25
-32
-917
-1,593
-1,530
Actual Deficits
Deficit/Surplus Constrained at National Income
Deficit Constrained By CPI
11
State and Local Spending

In 2011, the average American will work 44 days to pay for state and local spending. This is the same as 10 years ago in 2001 and down from 46.5 days in 2008. The decrease in state and local spending since 2008 amounts to a 5 percent reduction. Much of the fall in state and local spending is likely attributed to increased federal assistance to state and local governments. State spending looks likely to increase in future years because state and local outlays plus federal aid have reached an all time high since the 2009 stimulus plan. Federal money came with many strings attached that prevented states from offsetting infusions of federal cash that swelled baseline spending. When this injection of federal dollars finally dries up, taxpayers in the states will be on the hook to pay for the expansion of state spending programs upon which acceptance of the stimulus funds was contingent. One of the best examples of this conundrum is Illinois, a state with an unfunded pensions-per-capita ratio of $17,230:1. In 2010, the state held more than $6 billion in accumulated operating debt and over $83 billion in unfunded public employee pension liabilities. Rather than enacting spending reductions in an economic downturn, the Illinois Government under the leadership of Governor Quinn enacted a $7 billion tax increase in 2011.
14 15
the creation of www.USASpending.gov, the Center for Fiscal Accountability has been working with lawmakers on both the federal and state level to implement and improve policies that open government books to public scrutiny. New improvements have been made at the federal level, with legislation introduced that looks to streamline the vast web of reporting data into a single, consistent electronic platform. State governments are following suit, creating and improving their own transparency portals. As of June 2011, thirty-five searchable websites for government expenditures mandated by legislative or executive action have already gone live. In addition, several state constitutional officers have independently implemented measures to increase accountability through transparency. Through these efforts, detailed information on government spending is placed at the finger tips of taxpayers, who can track every tax dollar with a mouse-click. It is time for the states to put their fiscal houses in order. Now, more than ever, states would be well-advised to enact constitutional tax and expenditure limitation measures. Constitutional supermajorities for tax increases, such as the two-thirds requirement enacted in California, have successfully prevented major tax hikes in many years the Golden State has spent beyond its resources. After rejecting a nearly $60 billion tax increase in this years budget, California lawmakers passed a budget in June 2011 that specifies up to $2.5 billion in additional spending cuts if the state does not match its revenue targets. These sequestration measures are a key means of ensuring fiscal responsibility.
16
Accounting gimmickry that allows states to mask the true cost of their spending liabilities is more difficult in states where government expenditures are subject to public scrutiny. Since the passage of the federal Funding Accountability and Transparency Act of 2006 and
Days Worked for State and Local Spending

46.57
45.24 44.79 44.36 43.83 43.90 45.00
45.38
44.06
44.16
43.72
12
STATE TAX INCREASES

In recent years, most states increased taxes to continue to increase spending even during economic downturns. This report compiles a list of state tax increases by state from FY2002 to FY2011. The list is based on data from the National Association of State Budget Officers (NASBO) with three adjustments. First, we compounded the tax increases to reflect hikes adopted since FY2002 which have to be paid in successive years. Second, we adjusted each states tax increase by population to produce a better comparison across states. Third, the taxes for each year are indexed so all tax increases are stated in term of 2011 dollars. The index shows that, as in past years, New Jersey continues to be the leader among all states in terms of tax increases. Since FY2002 the Garden State government increased taxes per resident by $4,905 for a total net tax increase of over $42.8 billion. Residents of Connecticut, Rhode Island, Nevada, New York, Delaware, Tennessee, Minnesota, Ohio, Indiana, Vermont, and Oregon also suffered per capita increases of over $1,500 in the same period. From 2002 to 2011 only nine states reduced their taxes. This group is led by Idaho, North Dakota, and Florida, all of which reduced taxes by over $350 per capita. North Dakota leads the states in terms of tax cuts per capita in 2011. The North Dakota legislature reduced taxes by $100.70 per capita for a total of $65.8 million in the FY2011 budget. Overall, for the FY2002-FY2011 period North Dakota cut taxes by a net $197 million. However, North Dakota is only one of three states to cut taxes both over the FY2002-FY2011 period and in 2011. FY2011 net tax increases across the states totaled $6.4 billion, less than last years $25 billion. However, unabated spending continues to place the fiscal health of states in jeopardy and paves the way for higher taxes. Most federal grants provided to local and state governments work under a matching basis. For example, federal funding may be provided on a 2:1 basis to state and local spending. As federal grants are decreased, state and local politicians feel increased pressure to maintain previously subsidized levels of spending. A study by economists Russell Sobel and George Crowley found that federal grants lead to a 33 to 42 cent increase in state and local revenues in the long-run because of increased taxes. Sobel and Crowley estimate an aggregated $80 billion increase in future state and local taxes because of the federal stimulus bill. If the $80 billion in increased taxes occurred in 2011, COGD would increase
17
by another two days due to the stimulus a four percent increase in state and local spending. For example, for the 2011 tax year, Illinois Governor Quinn increased state taxes by $7 billion And yet, despite the largest state tax hike as a percentage of GDP since the Great Depression, Illinois will make no progress on reforming its future unfunded liabilities. The only sustainable solution is to cut spending. Some states aim for targeted tax increases, instead of politically unpopular broad-based tax hikes through the personal income tax or sales tax. Tax increases on particular consumption such as tobacco, gambling, and alcohol tend to be more appealing to politicians. Only a portion of the voting population will pay a substantially higher share of their income in the form of higher prices. Additionally, politicians claim to assist the poor by restricting their financial access. In resorting to such sin tax increases, the government is placing itself in the contradictory position of discouraging certain behavior, while at the same continuing to rely on that behavior to finance coffers. Alternative revenue measures outside of the personal income tax and sales tax are often regressive and/or hamper growth more than a broad-based approach. In 2011, seven states increased their tobacco tax rates, 17 states had introduced fees (which enacting politicians often claim are not taxes), and seven states had increased the corporate income tax on job creators. Additionally there are taxes on phones, insurance providers, and even family businesses after the owners death. The narrow nature of these taxes extracts significant portions of paychecks from low-income families while other taxes discourage job creation.
18
More audacious states increased personal or sales taxes, eight and nine respectively. Five states were emboldened to increase both: Arizona, Georgia, Maine, New York, and Virginia. Nationally, sales taxes were increased by $1.9 billion in 2011 and personal income taxes were increased by $423.5 million.
19
13
Cumulative State Tax Increases FY 2002-2011
Per Capita (02-11) $ thousand New Jersey Connecticut Rhode Island Nevada New York Delaware Tennessee Minnesota Ohio Indiana Vermont Oregon North Carolina Michigan Massachusetts New Hampshire Kansas Illinois Wyoming Maine California Virginia Maryland Washington Colorado Wisconsin New Mexico Oklahoma Alaska Kentucky Alabama Utah South Dakota Texas Georgia Arkansas Mississippi Montana Iowa Missouri Nebraska Arizona Hawaii South Carolina Pennsylvania West Virginia Louisiana Florida North Dakota Idaho 4,905.2 2,969.9 2,758.0 2,714.6 2,650.3 2,544.6 1,909.3 1,842.7 1,721.0 1,709.6 1,656.0 1,590.3 1,377.8 1,347.5 1,285.4 1,270.1 1,154.8 1,066.9 1,000.2 959.7 923.6 643.1 587.7 587.3 496.5 457.1 418.1 396.9 385.5 330.7 294.6 247.5 240.5 116.8 101.4 84.1 70.4 42.1 38.8 7.5 1.3 -58.2 -70.1 -102.4 -148.9 -188.0 -215.6 -365.9 -369.0 -542.4
Per Capita (FY 2002-2011) $ millions 42,836.5 10,474.7 2,914.9 7,206.6 51,886.1 2,268.4 12,101.5 9,748.9 19,846.2 11,019.2 1,030.8 6,131.4 13,032.5 13,382.1 8,523.9 1,681.0 3,280.9 13,809.8 547.8 1,260.1 34,421.1 5,114.3 3,371.7 3,962.2 2,530.0 2,590.9 850.4 1,478.1 273.3 1,435.1 1,393.6 700.6 197.2 2,945.9 1,004.3 244.8 208.5 41.2 117.3 45.2 2.4 -388.5 -91.1 -470.8 -1,881.9 -343.1 -976.7 -6,834.1 -241.2 -846.1
Rank
50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1
14
GOVERNMENT EMPLOYEES
15 out of 18 federal bureaucracies have expanded their payrolls increasing the number of civilian federal employees by 2.83 percent within one year. Meanwhile, state and local
20,21
payrolls decreased while spending increased for state and local governments. Given the 2011 federal worker pay freeze at 2010 levels, 53,344 new federal workers will cost taxpayers $373 billion. In 2010, the Americans for Tax Reform Foundation calculated the cost of hiring new GS-11 federal employeesthe median federal salary level. On average, each newly-hired GS-11 employee costs taxpayers $7 million dollars over the course of a 40 year career.
i 24,25
governments enacted some austerity measures by reducing payrolls by 179,600 workers. This is likely due to state and local worker unionization rates that are five times greater than the private sector. Recently, austerity measures for state and local workers precipitated by rampant government spending during a recession were resisted by Wisconsin unions. Rather than accept compensation concessions, unions forced the state and local governments to lay off workers. This is one explanation for why
22 23
The most significant bureaucracy expansions include:
Department Department of Education Department of the Air Force Department of State Department of Health and Human Services Department of Veteran Affairs Department of Homeland Security Department of the Navy Department of Defense Department of the Army
2010 Employment 4,242 165,055 11,625 80,631 301,759 185,295 191,541 105,452 281,340
2011 Employment 4,604 175,876 12,250 84,620 314,066 192,845 198,878 109,091 290,402
Increase 362 9,062 625 3,989 12,307 7,550 7,337 3,639 9,062
% Increase 8.53% 6.56% 5.38% 4.95% 4.08% 4.07% 3.83% 3.45% 3.22%
Source: US Office of Personnel Management, Employment March 2011 and Employment March 2010
A widely cited 2010 USA Today study found that average federal salaries exceeded private sector salaries across 83 percent of industries. These federal workers are less educated and less experienced than private sector workers in the same level of occupational responsibility. These findings suggest that federal workers receive a premium compensation package while taxpayers pick up the tab.
26 27
In March 2011, an American Enterprise Institute (AEI) study quantified those taxpayer costs for salaries and benefits. AEI found federal employees received 63 percent more non-wage compensation in the form of health care, pensions, or other benefits, than in large private sector firms. The study concludes that federal workers are presently paid an additional $77 billion in compensation per year
Assumptions: The employee is assigned a Step 5 in the GS table for a 40-year career.
The assumed COLA is the five-year moving average for the DC areas COLA: 3.55%. In order to account for benefits, pension contributions, and payroll taxes, the GS dollar levels are increased by 33 percent (standard budgeting practice in the Department of Labor in the Bush Administration) The dollar value is expressed in nominal terms and after-inflation (2.5%)
15
above an equivalent marketplace valuation of their labor. If federal workers were paid at private sector levels, COGD would be decreased two days.
28
employees were paid at average compensation levels for the education in the private sector, state and local governments would save over $9 billion each year. Whereas the federal government continues to put taxpayers on the hook for more workers, state and local governments have cut employment while increasing spending. Although state and local government workers have decreased by about one percent since last year, spending increased by 4 percent. Many states are facing pension crises as prior commitments to unrealistic benefit packages catch up to state coffers.
The problem of overpaid public workers bleeds into state and local government budgets. The Bureau of Labor Statistics found that: Total employer compensation costs for private industry workers averaged $28.10 per hour worked in March 2011. Total employer compensation costs for state and local government workers averaged $40.54 per hour worked in March 2011. 53 percent of state and local government workers are in the educational sector. If government
29 30
COGD Absent Overpaid Federal Workers
16
State and Local Employees (thousands) State and Local Employees (thousands)
State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri 111.8 26.4 85.1 78.1 493.1 99.0 70.0 33.1 221.8 152.4 74.5 28.6 154.4 119.1 68.3 55.4 103.4 112.3 28.2 118.8 126.9 185.5 102.4 61.6 108.8 Local 216.8 41.7 280.6 122.1 1685.0 244.8 160.3 26.5 775.3 413.7 18.4 80.0 621.1 283.6 172.0 185.5 188.6 218.1 61.8 249.4 268.7 402.0 288.7 160.5 286.6 Total 328.6 68.1 365.7 200.2 2178.1 343.8 230.3 59.6 997.1 566.1 92.9 108.6 775.5 402.7 240.3 240.9 292 330.4 90 368.2 395.6 587.5 391.1 222.1 395.4 Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming
31
State 25.4 41.6 38.2 26.9 147.4 60.5 254.9 195.9 25.3 167.9 86.5 82.4 162.2 16.2 95.4 19.0 99.2 385.3 67.2 18.2 160.8 151.8 49.3 96.8 17.1
Local 51.0 111.7 99.8 65.9 429.7 107.8 1121 446.3 47.5 540.4 204.1 194.1 499.1 35.2 209.9 48.6 286.9 1304 116.0 31.8 380.5 325.0 80.4 304.4 50.0
Total 76.4 153.3 138.0 92.8 577.1 168.3 1375.7 642.2 72.8 708.3 290.6 276.5 661.3 51.4 305.3 67.6 386.1 1689.2 183.2 50.0 541.3 476.8 129.7 401.2 67.1
Total: 19,583,000
Source: US Bureau of Labor Statistics, Employment, Hours, and Earnings State and Metro Area
As of March 2011, state and local governments have an outstanding debt of $2.447 trillion. Furthermore, state and local governments are facing a $3.1 trillion shortfall in projected pension spendinga shortfall of $21,500 for every US household. These liabilities are government worker pension promises that outpace the size of financial assets held by state and local governments. State and local governments unfunded liabilities comprise a massive 22 percent of GDP. All but 10 states have unfunded liabilities above 15 percent of state GDPfour states (Alaska, Hawaii, New Jersey, and Ohio) even have unfunded liabilities exceeding 35 percent of state GDP.
32 33 34
However, the true $3.1 trillion cost of state and local government promises continues to be masked with accounting gimmicks. States are significantly overestimating the rate of return on their pension assets. When scoring future net liabilities, discount rates are pegged at 8 percenta nominal interest return which is not realistic. Between 2004 and 2008, the nominal return on Treasury Inflation-Protected Securities averaged 4.35 percent. Therefore, a significant gap emerges between how states and localities plan future liabilities and the assets available to pay for those pensions. Reduction in the number of government workers and their benefits is essential for responsible fiscal governance. With continued misinformation on budget gimmicks, the problem of unfunded pensions will grow worse over time.
35
17
THE REGULATORY BURDEN

The average American will have to work 77 days in 2011 to pay for the cost of government regulation, which is estimated to consume 21.2 percent of net national product. This is up a quarter of a day from 2010.
Days Worked for Total Regulatory Burden
The large jump in regulatory costs between 2008 and 2009 is because of an update to the Crain methodology used for calculating regulatory costs. Crain uses a World Bank index that is more comprehensive than the OECD index. The index values come from 1,751 data points. Significant advantages over the OECD index include: 1) Larger data series, 2) Regulatory Quality Index (RGI) covering international economic regulations in addition to domestic that newly includes rules and mandates affecting factor markets (for example, Americans with Disabilities Act), and 3) the World Bank index covers all business sectors. Our conservative estimate of total regulatory costs takes into account only the cost of complying with regulations: the material resources and labor needed to carry out compliance. For example, if a regulation requires new pollution control equipment for power plants, compliance costs include the costs of manufacturing, installing, operating and maintaining the equipment.
Not counted are the negative economic effects of regulatory requirementsthe deadweight loss of these policies. Deadweight loss is societys valuation of goods and services forgone due to government rules. These hidden costs stifle the growth of the economy because they introduce inefficiencies and distortions, while reducing the economic reward left over for productive activity. Regulations may prevent new firms from entering the market or stop existing ones from expanding. They may even force some existing firms out of business altogether. In fact, regulations place small manufacturers at a competitive disadvantage relative to large manufacturers since compliance costs per worker are twice as high. Overbearing regulations could be disastrous for job creation since 64 percent of net jobs in the last 15 years were created by small businesses. The end result of regulation is a reduction in overall output, fewer jobs, lower wages and suppressed economic growth.
36 37
18
Each year, government regulators receive more funding to raise the costs of goods and services that taxpayers buy. In effect, taxpayers pay twice for regulations: Once for agencies to monitor growing government regulations and again when regulations increase prices those citizens pay. Although not counted as a part of the COGD for regulation, the budget for regulators was $54.85 billion in 2011 or 1.5 days. Regulator budgets have grown by 72.5 percent (2011 inflation adjusted dollars); much faster than the decades growth in regulatory costs. Former head of the Office of Information and Regulatory Affairs (OIRA), Susan Dudley, projects these costs will grow nearly $2.5 billion by 2012. An April 2011 study by the Phoenix Center found that the expansion of federal regulator budgets led to decreased economic growth and private sector job losses. The study finds that the regulators budget provides a financial gauge of regulatory activity. According to the study, a 5 percent reduction in regulator budgets would increase GDP by $376
billion and expand employment by 6.2 million jobs over five years. Conversely, for the 2011 $2.95 billon regulator budget increase, the economy loses 6.2 million jobs over five years. The data suggests that the macroeconomic benefits of cutting regulations are very large.
39
Higher regulatory costs will include more expensive bank credit as the Consumer Financial Protection Bureau (CFPB) publishes regulations that drive up industry costs for consumers. The CFPB will begin with a budget of over $500 million. The Reagan Administration attempted to simplify the regulatory burden on taxpayers and businesses in the face of a slowing economy in the 1980s. These policies made US firms more competitive and decreased the scope of government. This is reflected by the number of pages in the federal registrar, the national publication of all federal regulations, which fell from over 85,000 to under 55,000 by the end of Reagans presidency.
Regulators Budget
Billions of Dollars
38
Source: Susan Dudley & Melinda Warren, Fiscal Stalemate Reflect in Regulators Budget: An Analysis of the US Budget for Fiscal Years 2011 and 2012
19
The scope of federal regulations and the size of regulators budgets will grow in the coming years as PPACA is enacted while financial and environmental regulations are developed. The Obama Administrations agenda imposes higher regulatory and tax costs on a select few: rewarding friends and punishing opponents. The exemptions currently being granted under the Presidents healthcare plan are illustrative: of the nearly 1,400 Obamacare waivers granted, more than 50 percent have been given to firms with union membership. The problem is that only 12 percent of workers are unionized on a national level. At the beginning of May, over 1,372 exemptions had been granted by the administration encompassing more than 3 million workers. Of the 204 insurance mandate
40 41
exemptions distributed in April, 20 percent of them went to former Speaker of the House Nancy Pelosis district.
42
The danger of regulatory regimes is that big government chooses the winners and losers. Not only does the dead hand of government foster inefficiency, it generates economic uncertainty about who is welcome to journey along the road to recovery. The case studies section of this report will discuss specific harm caused by overzealous regulatory action under the Obama Administration: We focus on both prominent aspects of the Environmental Protection Agency Agenda and the economic implications of Dodd-Frank.
Pages in the Federal Register
90,000 85,000 80,000 75,000 70,000 65,000 60,000 55,000 50,000 45,000
1977 1978 1979
65,603 61,261
87,012 83,294 77,498 Ronald Reagan 73,880 72,356 69,688 69,368 68,108 68,530 67,518 80,332 80,700 78,851 78,724 77,752 75,795 74,408 82,590
67,716 63,554 58,494 57,704 53,480 50,998
67,702
69,676
62,928 53,842 53,620 53,376
49,654 47,418
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: National Archives and Records Administration, Office of the Federal Register
20
2010
21
A CONTINUING CASE STUDY: TARP AND ARRA

According to the CBO, the Troubled Asset Relief Program (TARP) cost $19 billion when taking account of net present value of cash holdings. CBO only scored TARP at 25 percent of enacted outlays
43
because of the expectation that much of the outlays would be repaid. However, CBO numbers measure only the budgetary costs of TARP. Another issue unaddressed by budget sheets is the distortion in economic behavior by banks and non-bank financial institutions when the government promises bailouts (particularly when youre defined as too big to fail as in the Dodd-Frank bill). A report by the Office of the Special Inspector General for TARP (SIGTARP) on government assurance of Citigroup said, It did more than reassure troubled marketsit encouraged high-risk behavior by insulating risk-takers from the consequence of failure.
44
TARP began with the claim of needing to support systemically significant organizationsa broad justification that came under scrutiny when political friends and car manufacturers began to receive aid. Furthermore, some financial institutions were required to take TARP funds even when they didnt ask. We didnt need the TARP money, said Jamie Dimon, the CEO of JPMorgan Chase. We took it because they asked us to.
46
Businesses valuation of assets should be reflective of the risk they are willing to assume. For the strongest economic growth to occur, assets should be valued by those willing to pay the highest price in a competitive market. They should not be held by firms largest enough to receive the government special on subsidized risk. The true cost of TARP is not the $19 billion added to debt; its the loss of economic productivity from businesses uncertain of what competition might look like because the Administrations policies select winners and losers through handouts. Rather than being based on clear criteria, the Citigroup bailout was decided on a strikingly ad hoc basis.
45
Thomas M. Hoenig, the president of the Federal Reserve Bank of Kansas City, noted that the five largest banks are 20 percent larger than before the crisis, and now manage $8.6 trillion in assets or nearly 60 percent of GDP. These firms reached their present size through the subsidies they received because they were too big to fail. In the aftermath of intervention, the administration increased national reliance on the financial institutions of which it is supposedly wary.
47
The Obama Administrations hallmark spending spree, the American Recovery and Reinvestment Act (ARRA), has failed to live up to all of its major promises of economic salvation. Obamas chief economist Christina Romer claimed that the stimulus would save millions of jobs, keep unemployment below eight percent, and that 90 percent of the jobs saved would be private sector jobs. Instead, federal employment grew by 75,000 jobs during the Great Recession, while private sector employment fell by 6.6 million.
48 49,50
COGD 2011 Absent Remaining TARP & ARRA Funds
22
Unemployment has consistently remained above 8.8 percent since April 2009. Despite the Administrations optimistic predictions of government management over the economy, data shows each job saved by the stimulus may have cost anywhere between $170,000 and $400,000. Preceding President Obamas inauguration, three hundred economists signed a statement warning the President-elect against such a use of federal funds.
51 52
CBO projects another $148 billion in ARRA outlays for 2011 and $94 billion for 2012-2019. $10 billion in TARP outlays are forecasted between 2012-2021. If remaining ARRA and TARP funds were repealed within 2011, COGD would decrease by $242 billion or 6.81 days. Despite the Obama Administrations insistence that the US industries are recovering, stimulus funds remain enacted. As ARRA outlays are currently enacted, CBO estimates ARRA will increase the federal deficit by $821 billion$34 billion above the original projection.
53 54 55
CASE STUDY: THE PATIENT PROTECTION AND AFFORDABLE CARE ACT (PPACA)
The first seven years of PPACA, known as Obamacare, will see steadily rising costs to an additional four COGD days by 2021a $1.16 trillion increase in federal spending for only one program in its infant phase. Almost 75 percent of costs are back-loaded to the last five years of CBO scoring. Additionally, the CBOs model seems to underestimate behavioral responses to incentives of government subsidized health care. Despite a system of taxes and penalties for not covering workers, many companies are planning on dropping employee coverage because of Obamacares rising health care costs. At least some of these formerly-covered employees will claim an Obamacare federal subsidy.
56
In contrast to all of the Obama administrations claims about the imperative nature of employer-sponsored insurance, 85 percent of employees said they would continue working at their business if health coverage was dropped. The McKinsey Quarterly Survey reveals that although health care is important, it is not a necessity in the minds of many Americans. Allowing the employer-employee relationship to determine the package of benefits and salary is the bedrock to providing the greatest care for American workers. PPACA: Independent Payment Advisory Board (IPAB) The Patient Protection and Affordable Care Act in 2009 created IPAB as a mechanism for controlling skyrocketing health care costs. IPAB consists of 15 full-time members appointed by the President and confirmed by the Senate for six-year terms. Their goal is to reduce Medicare spending when the five-year outlook for the average growth rate in Medicare per beneficiary is projected to exceed target growth rates. IPAB is prohibited from rationing care, increasing taxes, changing Medicare benefits or eligibility, increasing beneficiary premiums and cost-sharing requirements, or reducing low-income subsidies under Medicare Part D. With certain other limitations on spending, the 15-bureaucrat board may pull upon a variety of Medicare cuts, such as physician reimbursement rates under Medicare Part B.
59 60
PPACA: Drops in Employer Provided Coverage According to a June 2011 survey by McKinsey Quarterly, 30 percent of companies providing employer-sponsored insurance will definitely or probably drop coverage. Originally, CBO reported only 9-10 million workers, or 7 percent of employees, would have to switch to the subsidized federal exchange program in 2014. An increased number of participants on the subsidized federal exchange will increase the cost of government as mandatory federal spending rises above baseline forecasts.
57 58
Although the McKinsey survey suggests that other employee benefits will rise, it is uncertain whether employers that dropped health care coverage would provide the same value of benefits. However, the McKinsey study found that 30 percent of these employers would gain economically by dropping coverage even if they completely compensated employees with alternative benefits.
CBO scored IPAB to reduce the deficit by $28 billion between 2015 and 2019. Using the updated CBO baseline for Medicare expenditures, these savings only amount to .743% of all Medicare expenditures from 2015-2019. These supposed cuts are promoted
61 62,63
23
by lawmakers as a sign they are serious about reducing federal spending. The reality is IPAB hardly puts a dent in ballooning Medicare liabilities. Lastly, these cuts only occur if medical costs do not rise faster than CBO estimates. These supposed cuts allow for the plans proponents to claim fiscal austerity now without any guarantee of cuts later. Popular idealization of IPAB promotes a future of cost control centered upon hiring more bureaucrats without clear and transparent guidelines to find spending cuts, rather than politicians being
personally accountable for fiscal austerity. IPAB reflects the continued bureaucratization of health care, rather than holding elected officials accountable. PPACA: $480 Billion In New Taxes In addition to explosive new spending and regulatory uncertainty, Obamacare imposes a litany of new taxes, many of which will affect taxpayers making less than $250,000 a year. Some of the most significant taxes or reporting burdens include:
3.8 Percent Surtax on Investment Income (Jan 2013 / $123 bil) Hike in Medicare Payroll Tax (Jan 2013 / $86.8 bil) Individual Mandate Tax and Employer Mandate Tax (Jan 2014 / $65 bil) Tax on Health Insurers (Jan 2014 / $60.1 bil) Excise Tax on Comprehensive Health Insurance (Jan 2013 / $32 bil) Biofuel tax hike (Immediate / $23.6 bil)
Tax on Innovator Drug Companies (Jan 2010 / $22.2 bil) Tax on Medical Device Manufacturers (Jan 2013 / $20 bil) Increased Spending Threshold for Medical Itemized Deduction (Jan 2013 / $15.2 bil) Savings / Health Account Taxes (Jan 2013/2011 / $14.4 bil) Codification of the economic substance doctrine (Immediate / $4.5 bil) Employer Reporting of Insurance on W-2 (Jan 2011 / $min)
Total Taxes: $479.9 billion
64
These taxes only cover part of the $1.16 trillion spending surge for Obamacares first seven years, even less as Obamacare costs rise after 2021. The Patient Protection and Affordable Care Act increases the cost of government by 3.5-4 days by 2016. CBO estimates for Obamacare may be overly optimistic considering how more
employers are dropping employee coverage than previously forecasted. Additionally, PPACA will likely add more days to COGD when the ambitious CBO projected average growth rate of 4.71 percent through 2021 is not achieved.
24
CBO: PPACA Cost of Government Day Increases
If COGD increases are premised upon an average historical growth of 3.28 percent, even without accounting for the likely increase in federal health plan exchange participants, the cost of PPACA will be steadily growing over 4.5 days by 2021.
PPACA Cost of Government Day Increases Constrained by Average Historical Growth
25
CASE STUDY: DODD-FRANK

What is Dodd-Frank and Why Was It Enacted? The Dodd-Frank Act was enacted in July 2010 with the intent of avoiding another financial crisis like 2007. The Act constitutes the most sweeping financial regulatory reform since the Great Depression. According to the US Chamber of Commerce, DoddFrank calls for over 500 regulatory rulemakings, 60 studies, and 93 reports. Sarbanes-Oxley, another reactive financial regulatory bill passed in 2002, only required 16 rules and 6 studies. Even without addressing the economic effects of the Act, there are an estimated $20 billion in compliance costs. However, $20 billion likely underestimates the true costs of Dodd-Frank as many of its regulations have not been formed.
65 66
The Dodd-Frank response to the race to the bottom does not eliminate the causal factor: government subsidized risk. Instead, Dodd-Franks provisions try to (1) foresee crashes and (2) enact binding rules for a systemic firms liquidation. However, unintended consequences of regulations that do not address the causal problem restrict capital to businesses and banking benefits for Americans. In order to foresee crashes, there are three concerns that regulators ought to address: (1) Can enough information about the firm and market be acquired to accurately foresee a financial crash, (2) Is a policy prescription available that would lead to a net benefit outcome, and (3) Would the regulation be implemented in a timely fashion applicable to the information that was previously collected? In order for a regulation to positively impact the market there must be a sizeable staff to collect vast information in a timely manner (assuming regulators even have knowledge of businesses risk assessments on their investments), the political and regulatory process must be favorable to the passage of the ideal regulation, and the regulation must remain applicable to the market despite the markets constant adjustments and readjustments. The vast resources and considerations required to examine whether a regulation might be beneficial should not inspire confidence in even the best-intentioned regulator. In order for the Dodd-Frank regulations to take affect, it must go through the regulatory process. First, there is a notice of proposed rulemaking in the Federal Register that allows firms and citizens to respond to the analysis and provide their thoughts at least 30 days before the regulation takes effect. Additionally, depending on the regulation, hearings may need to be held. Agencies under the Executive Branch must then send any rule with an impact over $100 million to the Office of Information and Regulatory Affairs (OIRA). After outside review and feedback, the agency will either revoke its proposed rule or it will publish a final rule that will become the law of the land. However, the Treasury and other independent agencies are not required to report major rules to OIRA. This exclusion extends to the Consumer Financial Protection Bureau created in the DoddFrank bill that will serve as an independent agency within the Treasury. OIRA exemption for the Treasury removes a significant level of government accountability within the rulemaking process.
Dodd-Frank has two primary goals: (1) Limit the risk of banking and financial institutions and (2) Limit the damage when risk turns into failure. The idea of a safer banking system is appealing, but at what cost should policies purport to increase safety? When regulators control the permissible level of risk for investments, certain economic growth that would have been based on those investments must be foregone. Regulators presume to know more than what financial institutions already have the incentive to know: which investments are profitable and which are not. Presumption of knowledge about markets leads to outcomes such as the Durbin Amendment to place price controls on debit card swipe fees that will decrease consumer benefits. Financial market theories premised upon regulators knowing more about a firms affairs than the firm itself will lead to dangerous conclusions. Regulators dictation of permissible leverage decreases liquidity and can encourage increased quantitative easing when the Federal Reserve questions why there is a lack of liquidity. An alternative government justification for regulation is that financial institutions are engaged in a metaphorical race to the bottom of risk. According to this worldview, financial institutions and their CEOs make decisions on the basis of fearing exclusion from the market when high risks pay off for competitors, rather than investing on return expectations. Regulators view themselves as societys economic saviors by restricting financial investors by just the right amount so that only the right risks are taken. Ironically, for businesses defined as too big to fail by regulators, racing to the bottom will continue to be a common phenomenon when entities arent responsible for paying the costs of their investment failure.
26
According to the Act, in the event a systemically significant firm fails, the FDICs liquidation guidelines are enacted to ensure that the firms creditors are reimbursed. In theory, each of these systemic firms submits a living will that can be claimed by the FDIC in a time of financial insolvency. In June 2010, Treasury Secretary Geithner testified that Dodd-Frank would end too big to fail. Theoretically, the Treasurys goal is to maintain a credible monetary policy so firms invest with only market expectations, rather than also incorporating expectations of government intervention. However, two large problems emerge for Dodd-Frank to make a credible commitment to no more too big to fail.
67
Dodd-Frank: Durbin Amendment One of Dodd-Franks provisions is Section 1075, known as the Durbin Amendment. The Durbin Amendment is a price control on the interchange feethe fee a business pays to a card issuer for each consumer transaction. Although the law was only supposed to affect large financial entities with assets over $10 billion, many smaller financial institutions have stated that the Durbin Amendment could have devastating effects. A proposed rule issued by the Federal Reserve in December 2010 set up price controls at 7 or 12 cents per transaction, rather than the current 44cent industry average. The final rule was enacted on July 21 at 12 cents. These price controls may generate additional uncertainty for businesses as the Federal Reserve Board may adjust the exchange fee as they see fit.
73
The first is many of these too big to fail institutions have international operations that make the concept of FDIC asset seizure a less picturesque reality. Defining a $50 billion threshold of too big to fail may only create a safety net for banks. Therefore, it remains to be seen whether the complicated and numerous provisions set by regulators can be consistently adhered to, rather than providing loose guidelines for financial behavior and continuing to subsidize risk-seeking. If markets perceived DoddFrank as a turning point in Treasury policymaking against bailouts, then Dodd-Frank would mark a new era of ending subsidized risk. However, Treasury Secretary Geithner has shown his hand on the credibility of Dodd-Frank claiming that in the future we may have to do exceptional things again and you dont know whats systemic and whats not.
68 69
Testifying on behalf of credit unions and community banks in front of Congress, one credit union CEO explained the costs of processing debit card transactions were underestimated by regulators. He noted that the Fed did not account for how interchange fees were used to charge-off fraud losses. More subtly, the testimony addressed how increasing the costs of financial activity can restrict consumer benefits. In surveys of NAFCU members, 65 percent of surveyed credit unions are considering eliminating free checking in order to compensate for higher costs, and 67 percent are considering imposing annual/monthly fees on debit cardholders. Survey responses also included job layoffs, reduced dividends, or closing credit unions. Other financial institutions are likely to cut benefits as well.
74
75
Secretary Geithners comments reflect the administrations propensity for ad-hoc market interventions. Regulatory action already has negative costs of compliance, of restricting opportunities for economic growth, and of supporting larger bureaucracy. The administration goes one step further by claiming that costly rules are only guidelines, and that more intervention is still possible. Questions for regulators: What economic and job growth would not occur because of this regulation? How much does this regulation decrease the probability of financial insolvency? What is the estimated cost for financial insolvency after a firm liquidates? Is the expected economic value of regulation greater than the expected value of allowing economic growth?
The federal register notice for the regulation hardly considers how businesses might respond to the final rule. One section articulates a belief that firms will find innovative cost-reduction methods to bring down interchange fees by 32 cents as a consequence of the regulation. This logic begs the question why any responsible businessman would not have sought cost minimization already. A more likely response, entirely overlooked by the final rule, is that consumer benefits will be cut. No regulatory impact analysis was conducted for the final rule although it will have significant costs. If the Treasury was subject to oversight from the Office of Information and Regulatory Affairs (OIRA), a cost-benefit analysis would have been required.
77
In response to the price controls on interchange transaction rates, 17 organizations wrote letters to the Secretary of the Board of Governors of the Federal Reserve System opposing the rule. The law offices of Morrison and Foerster found that the Federal Reserve had failed to measure the incremental costs of authorization, clearance, settlement of
2
2 The Consumer Banker Association, SunTrust Bank, Peoples United Bank, Commerce Bancshares, Inc., National Association of Federal Credit Unions, Navy Federal Credit Union, The American Bankers Association, The Clearing House, The Financial Services Roundtable, The Independent Community Bankers of America, The Credit Union National Association, Midsize Bank Coalition of America, The Consumer Bankers Association, VISA, Discover Financial Services, Total System Service, Inc., and Citigroup, Inc.
27
FANNIE AND FREDDIE
ne large expansion of government activity in markets has been Fannie Mae and Freddie Mac. These federally supported businesses guarantee access to mortgage markets below market rates and taxpayers assume all the risk. A CBO study found Fannie Mae and Freddie Macs subsidization of mortgage interest payments increased the national debt by $317 billion through March 2011. The $317 billion is the difference between the asset values of acquired mortgages and the costs of mortgage subsidization. During the economic downturn, government-backed subsidized mortgages increased on the backs of taxpayers as interest rates rose in the private sector. Over the next 10 years, taxpayer-funding of subprime housing markets is projected to increase by $41.6 billion.
70
enterprises (GSE) with charters from the federal government. In exchange for following certain regulations and conditions, Fannie and Freddie receive the governments financial support and a quasi-monopolistic position in the conforming sector of the market. Because Fannie and Freddie receive such significant government support, market entry is far too costly for possible competitors. Using taxpayer subsidized funds against promising businesses enables a Big Business monopoly over the conforming mortgage market.
72
Competition under equal treatment of the law provides quality improvements, sound risk taking, greater customer satisfaction, and higher economic and job growth. Crony capitalism, such as a high degree of cooperation between regulators and Big Business, leads to opposite results. Worse, as businesses become captured by political interests, they become symbols of government performance that politicians try to present as model regulatory successes. Rather than umpiring competing firms, government becomes a player as well.
71
Fannie and Freddie own more than 40 percent of all residential mortgages in the country. Their operations are focused within the conforming sector of the mortgage market: mortgages not exceeding $417,700 (in 2009). Both are government-sponsored
electronic debit transactions, and other specific debit transactions totaling 27 cents per transaction. Many of these firms explicitly stated that costs will be shifted to consumers. The Fed has not conducted vital economic analysis examining how business behavior will change in response to price controls.
77 78
A February 2011 consumer study found that the regulation would eliminate $33.4 to $38.6 billion of debit card interchange fee revenues within two years. Much of this would be passed on to consumers and businesses in form of higher fees or reduced card rewards and services. The study concludes that unbanked individuals will likely increase by more than 1 million low-income households thereby taking away the interest and security of banking for the countrys poorest. Additionally, its estimated that the costs of $4.2 to $4.8 billion of debit card interchange fees from small business accounts will be borne by those businesses. As many of these small businesses do not accept debit cards, the price controlled interchange losses will impact businesses in the form of fewer banking benefits.
79 80
Dodd-Frank: Volcker Rule One of the other significant financial regulations from Dodd-Frank is the Volcker Rule. The Volcker rule restricts banks from engaging in financial activities that are deemed too risky. The rule restricts financial investments in hedge funds and private equity funds by not permitting a bank to invest more than three percent of its assets. Those particular investments are called proprietary trading. The uncertainty about the particulars of the Volcker Rule, prior to its April 2011 final rule form in the federal register, may have delayed economic recovery by dissuading investors from arbitrage opportunities. For example, eleven traders in Goldman Sachs departed from proprietary trading to work for different equity or hedge funds after passage of Dodd-Frank. This is in addition to $400 million Citi Group fund shutdown and Morgan Stanley disinvestment. At a time when all avenues of economic growth are important to recovery, regulatory action barring investments deemed too risky by bureaucrats does not instill confidence in the Administrations commitment to recovery and impinges on important growth.
81 82
28
Dodd-Frank: Over-the-Counter (OTC) Derivative Regulations A derivative is a contract between at least two parties where the value of the derivatives underlying assets (stocks, bonds, commodities, etc.) determines its price. OTC derivative swaps occur among derivative dealers outside of a centralized exchange. OTC derivatives usually emerge from small businesses which do not meet exchange listing requirements. One of the proposed rules under Section VII of Dodd-Frank is to subject OTC derivative traders to capital and margin requirements. These requirements would mandate minimum levels of financial backing to derivative trading. Dodd-Frank reduces market transactions and increases interest rates through capital requirements. Decreased derivative supply and increased interest rates act as a brake on trading and slow economic growth. In exploring the possible costs of capital requirements, Keybridge Research polling found that 61 percent of firms report that proposed regulations would have a moderate to significant impact on the level of working capital required to operate their businesses. A regulatory decrease in working capital would lower financial liquidity for certain firms and cause a decrease in investment and job creation. Keystone estimated that a three percent backing rule for S&P 500 firms would require $12.7 billion in aggregate collateral and eliminate 100,000 to 130,000 jobs. Regulation of OTC derivatives will decrease financial liquidity and decrease funds available for investment. The regulation, when published, should show a clear impact of how consumers are bettered by a rule that restricts funds to businesses. However, it is unlikely that the forthcoming rule will examine the lost economic productivity of the regulation.
83 84
David Evan, Chairman of Global Economics Group, testified before Congress that the CFPB could drive up the price of credit and depress job growth particularly among new small businesses. In fact, Evans reported that the CFPB has a genetic makeup that may make it inherently hostile to companies that want to lend money and to consumers that want to borrow money.
86
Todd Zywicki, Professor at George Mason University Foundation School of Law, claims that without a monitor for the CFPB, the organization will ironically produce higher levels of fraud and abuse of American consumers. Aside, from Zywickis first recommendation that the CFPB be liquidated, he suggests that the agency be subject to oversight and transparency like other bureaucratic agencies in relation to OIRA. Never before has one independent agency existed as a subdivision of another independent agency (the Treasury).
87
As the CFPB creates new regulations it is essential that a thorough cost-benefit analysis be conducted of the proposed rules, particularly as certain rules hinder marketplace competition. At all times, a systemic problem should be identified that the proposed rule attempts to avert. Anecdotal justifications for government intervention should not take the place of a comprehensive, well-defined study. Concluding Remarks on Dodd-Frank The question remains whether the net benefits of regulatory action contained in Dodd-Frank outweigh the net benefits of allowing firms to assume risks of their investments. Whether regulatory regimes are or are not in place, sound financial behavior must be premised on the expectation that firms are responsible for the risks that they assume. According to North Carolina Professor Lissa Broome, Financial institutions that do not bear the full costs of their risky activities have no incentive to reduce or alleviate that risk. Otherwise, $50 billion asset holders with too big to fail backing receive a competitive advantage over smaller growing businesses. Secretary Geithners comments should not warrant confidence that the era of too big to fail is ended.
88
Dodd-Frank: Consumer Financial Protection Bureau (CFPB) Dodd-Frank established the CFPB for regulators to intervene in financial market practices. As an independent agency, CFPB already has 62 regulations on the docket that will not receive binding review by intergovernmental agencies. The CFPB will regulate and punish unfair lending practices, abusive loans and loan terms. The differences in these practices have yet to be defined by the agency. The CFPB claims to protect consumer interests, but in practice will harm consumers by limiting credit and inhibiting job growth in small businesses. Continued uncertainty about the impact and form of the CFPB regulations hinders economic recovery.
85
If the $20 billion annual compliance costs began in 2011, DoddFrank would add half a cost of government day indefinitely. These costs still underestimate the economic cost of Dodd-Frank. The increased costs of doing business due only to the Durbin Amendment and restricting OTC derivatives is approximately $48.7 billion in foregone economic growth. Although these costs do not count toward the cost of government dimension of compliance costs, they are significant economic burdens borne by citizens experiencing decreased banking benefits and job availability.
29
CASE STUDY: ENVIRONMENTAL PROTECTION AGENCY (EPA)

Bureaucracies and government interventionists call for regulation of air and environment quality as a way of addressing a race to the bottom phenomenon where polluters take advantage of society through uncontrolled emissions. These parties have long seen the EPA as a necessary source for solving market failure. However, from the 1940s until the 1970 founding of the EPA, the environmental race to the bottom was not occurring. A 2000 study by Indur Golansky examined air quality historical trends in the US prior to the 1970 formation of the EPA. His empirical data showed a decrease in smoke, total suspended particulates (TSP), sulfur dioxide (SO2) air quality, and stationary source carbon monoxide (CO) emissions prior to the EPA. It is not a race to the bottom of environmental quality but to the top of the quality of life.
89
Since the 1970s, there have been significant reductions in certain air pollutants. However, that is not a sufficient measure of a successful agency. Golansky wrote that in the absence of federal controls one should expect that there would have been continued improvements in air quality even in the absence of nationalization. The fundamental difference between the EPAs emission regulations and the decrease in emissions that would have occurred without a command-and-control system is that only the latter provides a comprehensive account for improving the quality of life.
91
Human needs and quality of life vary depending upon many variables that can change due to outbreaks, shortages, or new technology. Legal rigidity prohibiting societys valuation of pollutants will necessarily cause the cost of government to rise for Americans. The next two sections highlight two imminent ways in which the EPA continues to cause the quality of life to decrease. EPA: The Clean Air Transport Rule (CATR) and Utility Maximum Available Control Technology (MACT) Energy Regulations In 2008, then-Senator Obama claimed as President he would endeavor to make energy prices rise: Under my plan of a cap and trade system electricity rates would necessarily skyrocket. Businesses would have to retrofit their operations. That will cost money. They will pass that cost onto consumers. After Obamas cap-and-tax bill was rejected by Republicans and Blue Dog Democrats concerned about the economy,
92
In the early stages of economic and technological development, US society placed a greater emphasis on improving quality of life through affluence and reduction of diseases such as malnutrition and parasitic diseases; tolerating some environmental degradation. As wealth grew, society placed greater emphasis on environmental needs because air quality became a relatively more important determinant for the quality of life. Substantial improvements occurred because society valued the technology to reduce emissions, not because regulations existed to punish businesses.
90
U.S. Electricity Generation by Source
93
20% Nuclear
6% Petroleum 5% Other
24% Natural Gas
44% Coal
1% Hydoelectric
Source: U.S. Energy Information Administration, Net Generation by Energy Source: Total (All Sectors)
30 COST OF GOVERNMENT DAY 2011 REPORT
Obama enlisted the EPA to reduce emissions despite the financial cost. Two recent regulations by the Obama Administration, the Clean Air Transport (CATR) Rule and Utility Maximum Available Control Technology (MACT) Rule, are estimated to cost Americans $184 billion in regulatory compliance costs. These two regulations impact
94
coal and natural gas pricesnearly 70 percent of total US electricity production. The $184 billion cost does not account for how decreased competitiveness may affect future growth, such as exports to foreign markets. ICF International (ICFI) estimated coal exports would double by 2018 unless constrained by limited export capacity.
95 96
In the first year of the regulation, overnight capital costs to the industry would total $72 billion. These costs will provide a shock to electricity prices in the United States. Conveniently for Obamas re-election, electricity prices will not increase dramatically until 2015. If the $72 billion in new energy costs fell in 2011, the COGD would increase by another two days. These EPA rules will
97
be among the most expensive ever imposed on the coal industry. Unable to get Congress to tax businesses during a recession, the Obama Administration has turned to regulatory agencies to push his environmental agenda.
98
COGD 2020 with Ozone Regulations

29-Aug
11-Aug
COGD 2011 with Electricity Regulations

14-Aug
12-Aug
31
According to National Economic Research Associates, Inc., the two EPA rules would increase electricity costs by 11.5 percent and create a net loss in US jobs of about 1.44 million between 2013 and 2020 losing roughly 4 jobs for every one clean-energy job created. The idea that raising costs on an industry spurs net job growth is not a subject that leading economists have usually taken seriously enough to
99
EPA: National Ambient Air Quality Standards (NAAQS) The Clean Air Act, last amended in 1990, requires the EPA to set standards for pollutants deemed harmful to public health and the environment. Primary standards for the NAAQS are set for sensitive populations with low immune systems, and then secondary standards are set for the general population, the environment, and buildings. Every five years, the EPA increases the standards for the NAAQS. The main problem with NAAQS is that the EPA only uses the criterion of establishing a standard for protecting public health that allows an adequate margin of safety. The EPA only examines one aspect of human welfare without making regulatory decisions based on possibly significant and far more damaging unintended non-health impacts to quality of life. EPA rulemaking can focus on environmental and health effects, but must be reformed to require incorporation of cost-benefit analysis.
103
criticize in professional journals.
100
The higher costs of coal are estimated to drive up the demand for natural gas as an energy substitute thereby increasing natural gas prices by 17 percent. Increased costs do not appear only in home utility bills, but also appear in higher costs of powering warehouses and stores. These costs are passed along to customers in the form of higher prices. US consumers will not bear the costs evenly. Certain regions dependent upon natural gas or coal, such as the Appalachians and parts of the Midwest, are strongly penalized by price fluctuations while other areas experience minor increases in energy costs, such as California. The increased electricity costs come from businesses retrofitting their equipment or from electricity supply decreases as plants close. For example, industry leader American Electric Power has announced they will shut down 5 power plants because of these two EPA rules. ICFI estimates that 50 energy plants will close in the next ten years.
101 102
One of the NAAQS is for SO2 emissions. Prior rules set standards for average SO2 concentration levels over a 24-hour period. The Obama EPAs new rule determined that industrial businesses had to comply with concentration levels over 1-hour periods. The rule is problematic for plants because a small error could lead to an
COAL ASH REGULATION
n 2010, the EPA issued a proposed rule to classify coal combustion residuals (CCR) as hazardous waste.
107
Currently, over 40 percent of CCR are beneficially reused as building material. Even if special exemptions were
made for beneficial CCR, the stigmatization of CCRs hazardous waste level would undermine its usefulness in construction; another example of the uncertainty costs produced by aggressive regulatory regimes. While the EPA
conducted a cost-benefit analysis for the proposed rule focused on compliance costs, it fails to encapsulate how the costs of construction would rise as contractors would likely decline to build with materials labeled as hazardous waste. A study by the Electric Power Research Institute found that the compliance costs of a hazardous waste classification ranged between $55 and $77 billion over the next twenty years. In addition to compliance costs, regulations
108
consistently do not account for the behavioral response to laws and cost increases.
32
irreconcilable violation that could have been easily adjusted over a 24-hour average. The new rule will require newer technology that raises the costs of production. Additionally, the new rule utilizes computer models, rather than air quality monitors at the plant, to determine if a 1-hour violation occurred. In addition to being legally questionable, the computer model requirement takes monitoring controls away from the businesses that might use a variety of methods to control emissions that a computer model may not be designed to account for. SO2 regulatory rules are implemented beginning in 2014. The Obama EPA tightened NAAQS for nitrogen oxides (NOx) and particulate matter with a diameter of 2.5 microns or less (PM2.5 NAAQS). Coal-fired plants are required by 2016 to acquire selective catalytic reduction (SCR) units to prevent the formation of ozone when NOx and hydrocarbons are combined. As energy plants install more SCR units, they will also have to comply with PM2.5 NAAQS for SCR units. In a report on ozone reduction, the Manufacturers Alliance found that the EPAs proposed allowable ozone emission standard of 60 parts per billion (ppb) would cost $1.01 trillion in 2020 and in subsequent years through 2030. These attainment costs are particularly high because the marginal cost of ozone reduction rises quickly as more expensive technologies are required to meet more stringent standards. Using CBO federal
104
spending baseline estimates for the next ten years, the Obama ozone regulations will increase the cost of government by 18 days. If growth is premised upon historical averages rather than CBO estimates, the ozone regulation will increase the cost of government by 21 days in 2020. The Manufacturers Alliance report estimates job losses of 7.28 million in 2020.
105
In a 2008 study on NAAQS, Patrick McLaughlin from the Mercatus Center found a clear upward trend in the cost per statistical life saved as a result of additional environmental regulations. As certain low-hanging regulatory fruit was taken in the 1980s at a low cost of $6.1 million per life saved, some regulations became even less effective until the cost per life saved was in the billions. McLaughlin concluded: If the EPA Administrator continues to be unable to consider costs in setting NAAQS, then society will eventually be made worse off, if that has not occurred already.
106
Regulatory impact analysis for some of the NAAQS have not been conducted yet. If the costs of these regulations on the coal industry resemble those of CATR/MACT energy regulations and ozone ppb standards, electricity costs will see further increases as a result of Obamas EPA.
33
CASE STUDY: INTERSTATE TAXATION

States across the country have gradually begun to force new tax liability onto out-of-state, non-residents as a means of collecting more tax revenue and growing the size of government. Nexus refers to law that defines a threshold of activity in order for a state to claim that a business or individual is responsible for the collection or payment of taxes. Historically, nexus was established by a physical presence, whereby only individuals or businesses with a direct footprint in a state (e.g., property or employment) would be forced to comply with tax law. However, states have slowly begun to dissolve the physical nexus standard in lieu of a nebulous economic nexus, codified in varied forms around the country that exports the tax burden to non-residents. The gradual shift to economic nexus is an attempt by states to raise tax revenue beyond what their own economies and taxpayers can sustain. Economic nexus poses a direct threat to the principles of democracy and republican governance by the people, shifting the cost of government to non-residents. It also violates the benefits principle by pushing the tax burden onto those that receive no direct benefit from the state. Below is an overview of ways in which states have recently sought to dissolve the physical nexus standard, and federal bills that would strengthen and weaken it. Interstate Sales Tax Collection: The Internet Nexus The rise of Internet sales originating from out-of-state online retailers has prompted state lawmakers to target the physical nexus standard for sales tax collection. In Quill v. North Dakota, the U.S. Supreme Court ruled states could not force an out-of-state retailer without a physical presence to collect tax, or it would be a violation of the Commerce Clause. States have sought to push the boundaries of the Quill decision by attempting to turn retailers economic activity into a physical presence. The most prominent strategy to undo physical presence has been the Affiliate Nexus Tax, which establishes nexus if an out-ofstate online retailer advertisers with in-state web advertisers. The legislation has prompted retailers to sever contracts with advertisers to avoid the likely unconstitutional law, causing many advertisers to go out-of-business across the country. Another strategy that was recently found to be a violation of the Commerce Clause and First Amendment would have required out-of-state retailers to report detailed customer information to the Department of Taxation. This would allow the state to pursue residents for use tax collection, which requires residents with a physical nexus to pay taxes on goods they buy elsewhere, but use in a state. In California, lawmakers recently passed legislation that allows the Board of Equalization to establish vague rules regarding when a company has a substantial nexus.
34
On the federal level, Congress has authority over interstate tax law under the Commerce Clause and is considering legislation known as the Main Street Fairness Act that would authorize states to enter into a compact to force residents and businesses in those states to collect and remit taxes across their borders, raising state taxes by an estimated $23 billion. This legislation would largely dissolve the physical nexus standard, permitting states for the first time to force out-of-state, non-residents to collect taxes on Internet, catalogue, and other sales. Interstate Income Tax Collection: BATSA In addition to eroding the physical nexus for sales tax collection, states have also taken steps to force out-of-state businesses to pay income tax. Roughly half of the states have weakened the physical presence requirement, thereby greatly enlarging any one states ability to claim tax revenue from a business based out-of-state.
109
BATSA universalizes nexus law by establishing one definition for the 50 states whereby a business must have a physical presence to be taxed. Under BATSA, businesses would have clarity and uniformity in the law, and be confident that doing minor business across state lines would not trigger compliance with an importing states tax laws. Businesses are hesitant to invest when they are uncertain about being pursued for tax revenue or slapped with lawsuits over back taxes when offering services across a state border. Additionally, the measure will help to protect the Internet economy that is largely borderless. As cloud computing and Internet software sales become more commonplace, the cost of compliance with complex interstate tax laws will increase within the technology industry. Economic nexus poses a particularly costly threat to IT firms, which offer remote services to customers across many different states. These technological innovations offer significant improvements for businesses, but poor tax policy severely jeopardizes those gains. BATSA and physical nexus are models of taxation that reflect good governance and the so-called benefits principle, where citizens of a state pay taxes proportional to the benefits provided by the state. It is patently unfair for a business in Virginia to pay for government services in the state of Rhode Island.
The federal Business Activity Tax Simplification Act (BATSA) rectifies these interstate taxation problems by defining physical presence as a necessary condition for income tax obligation and expanding the prohibition of interstate taxation to intangible property and services. The measure is currently under consideration in the US Congress, which has authority under the Commerce Clause of the US Constitution to protect against economically destructive interstate tax laws.
CASE STUDY: POST OFFICE REFORM
In 2010, the Post Office employed 673,800 workers at an average wage of $52,230 per worker, not including pensions or nonmonetary benefits. The US Postal Service spends $35.2 billion every year on wages alone. In FY2010 the Post Office overspent its $67.1 billion budget by $8.5 billion, despite cutting over 100,000 jobs. Much of the Post Offices budgeting problems emerge from generous benefits packages higher than other federal workers. In 2010, the Department of Labor found that the actuarial liability of Post Office workers pensions composed 37.8 percent$10.6 billionof total federal worker liabilities.
110 111 112
Using the March 2011 American Enterprise Institute (AEI) study on overpaid federal workers to calculate the market level compensation for Post Office workers, this study estimates that taxpayers pay a $19.87 billion premium to federal workers each year. The AEI study found that federal workers, excluding postal workers, were compensated $77 billion above equivalent private sector levels. Postal workers receive higher benefits than many federal workers, but they are paid less than the average federal worker. This report errs on the conservative side of calculating the overpayment of Post Office workers by weighting average wage difference while maintaining AEI measures of job protection or non-salary benefits.
113 3
Dividing the average postal worker wage by the average GS-11 pay step provides a ratio where Post Office workers are compensated 10 percent less on average than other federal workers. Our assumptions: There is an even distribution of premium benefits among federal employees.
As a percentage of income, the job security and non-wage benefits of Post-Office workers are similar to the average federal worker. This may significantly underestimate the special retirement compensation options that Post Office workers receive
35
In June 2011, Congressman Darrell Issa, Chairman of the House Committee on Oversight and Government Reform, introduced the Postal Reform Act to stop these excessive losses. His legislation proposes to 1) Eliminate benefit discrepancies between what postal workers receive and what other federal workers receive, 2) Pay postal workers their private sector equivalent wage without the federal premium, and 3) Change service and contracting policies. These service policies include moving a 5-day delivery of mail and $2 billion of savings in office and facility closings. Once fully implemented, the Act would save the US Postal Service $6 billion per year.
114
delivery services while requiring taxpayers to bail out the 219-year-old mail delivery incumbent. Special government benefits for the Post Office include exemption from the corporate income tax, exemption from antitrust laws, and unique customer access privileges through the right to place collection boxes on public streets. These special legal benefits stifle competition among businesses that would be promote lower costs and better quality services. Market level compensation of Post Office workers is estimated to decrease the Cost of Government by $19.87 billion, or half of a day annually. Privatization of the Post Office would free taxpayers from $67.1 billion of expenses that businesses would compete to reduce through cost-control incentives and/or quality improvements. Allowing businesses to deliver the mail competitively would reduce the cost of government by nearly 2 days and improve the quality of mail delivery.
The Post Office receives unique financial and legal benefits that pose significant barriers to entry for potential competitors. The Postal Reform Act represents an important step forward to reducing protection against mail competition. However, many cumbersome regulatory burdens remain that discourage innovation in mail
COGD 2011 with Post Office Privatization

8/13/2011 8/12/2011 8/11/2011 8/10/2011 8/9/2011
36
CASE STUDY: FEDERAL TAKEOVER OF TAX PREPARATION
Various pieces of legislation have been proposed since 2005 that would introduce a return free tax filing scheme for federal returns. Proponents claim benefits of saving peoples time and resources on tax filing. However, switching away from a voluntary tax compliance system could be dangerous on several levels. First, there is a change in who has the burden of proof for determining tax liability. Currently, if the IRS believes the taxpayer misfiled taxes, the burden of proof is on the agency to show the error. However, in countries like France and Sweden that use a return free system, it is the taxpayers responsibility to prove the government incorrectly filed. The taxpayer must go through a politicized process to not defend, but prosecute for a true tax liability. Unless the difference in taxes is substantial enough to compensate the prosecuting taxpayer for his time and resource expenses, he would be rational to allow tax injustices to continue. A return free system sanctions government theft of private taxpayer dollars. Second, a conflict of interest emerges for the IRS. The IRS has an interest in maximizing the legal amount of taxes owed while taxpayers want to minimize the burden owed. Within the U.S.s current system of voluntary compliance, there is a healthy friction where citizens are the defendants of their earnings unless proven to be guilty of underpaying taxes. Under a return free system, the IRS is placed in the position of maximizing tax returns without taxpayer assent.
115
Fairness and Simplification Act. While the Act does promote transparency by giving taxpayers an annual record of what portion of their taxes went toward major categories of government spending, the Act should be reformed to eliminate the Easyfile (a return free) system that would insulate the IRS from claims of tax injustice.
117
Return free systems have also been tried on the state level. In 2005, a pilot program was run by California to test the publics desire for a state-run filing system. Of the 50,000 filled-out tax reforms sent by the state, 39,000 recipients threw those returns in the trash and filed individually. This suggests distrust of government filing largely outweighs whatever barriers proponents of return free filing imagine exist for taxpayers.
118
During the 2010 session, Virginia Governor Bob McDonnell stepped away from the state governments involvement in tax preparation by signing House Bill 1349 which removed the state from the business of filing taxes. The states experience should inform the federal effort to distill taxpayers power over their own tax obligations; Americans desire and deserve an impartial observer to measure tax liabilities. Federal or state tax filing operations increase the cost of government because of new spending on administrative and accounting resources needed to support a return free system. More significantly, any new revenues raised by government management of tax filing would likely be used to increase spendinghistory shows increasing availability of funds is matched by increased government spending. Allowing government to file taxes for taxpayers is an underhanded attempt to increase revenues and, correspondingly, outlays.
In 2005, eleven Senators signed letters opposing the use of a Return Free tax filing system. In 2011, Senators Dan Coats (R-Ind.) and Ron Wyden (D-Ore.) proposed S. 727, the Bipartisan Tax
116
37
CONCLUDING REMARKS: THE PATH TOWARDS AN EARLIER COST OF GOVERNMENT DAY

In April, Budget Chairman Paul Ryan (R-Wis.) proposed over $5.8 trillion in cuts relative to the CBO baseline in the House 2012 Budget, labeled the Path to Prosperity. These cuts promised a real change from the present direction of federal spending. The baseline, not to even speak of the $400 billion increase in the FY2012 Obama Budget, reduced federal spending Cost of Government Days by only 1.1 percent by 2021. These numbers do not highlight the continued baseline deficit spending that places federal debt as a percentage of GDP at 101 by 2021adding $6.25 trillion to the debt. The Path to Prosperity would reduce federal spending Cost of Government Days by 17.5 percent at the end of the decadea decrease of 18 Cost of Government Daysreturning COGD to July. This report presents a modified version of the Path to Prosperity that incorporates regulatory changes. The baseline is increased by the introduction of Dodd-Frank, CATR/MACT, and ozone regulations. Conversely, the Toward a Lower Cost of Government Day plan enacts the Ryan spending cuts, while incorporating other market reforms such as paying government employees at market equivalent levels, cutting forecasted Fannie Mae and Freddie Mac taxpayer subsidization, and enacting Post Office reform. The costs of government highlighted do not cover the value of economic transactions foregone through the deadweight effects of government policies. These transactions are the family car not purchased, the wheat not grown, the technology not invented, and the innumerable ways in which government prevents economic growth. Neither do the costs presented in this report capture the lost economic growth due to business uncertainty generated by threats of increased taxes or a list of 500 undefined financial regulations. The Phoenix Center found that decreasing the power of regulators by shrinking their budgets by 5 percent would increase GDP by $376 billion and increase employment by 6.2 million over five years. With 15 out of 18 bureaucracies increasing employment in 2011 and regulator budgets increasing by $2.95 billion, its time to cut the cause of discouraging economic growth. Of late, the problem has grown to be more complicated than economic growth foregone. High doses of government intervention within the auto industry and financial sector subsidize risk-taking and encourage resource mismanagement. Friends of government prosper while competitors must compete against the resources of the stateall
Forecasted COGD 2012 - 2021
Baseline with New Regulations
Toward a Lower Cost of Government Day
38
within the climate of uncertainty created by a prohibitive tax regimes and consequentially hesitant marketplace. In the Patient Protection and Affordable Care Act, $480 billion of new taxes were imposed on businesses, workers, savings, and innovation. For federal legislators looking to cut spending now, two proposals should be adopted immediately. First, remaining TARP/ARRA funds should be repealed immediately. The bailout is over and government stimulus spending has done little to spur economic recovery. Second, enact reforms to compensate federal workers at market sector equivalent wages. If enacted at the beginning of 2011, these simple reforms would have cut spending by $338.87 billion and decreased the cost of government by nine days in only one year. State legislators face issues of their own. They must continue to step forward with other states in reforms that promote transparency of government spending so that citizens know where their tax dollars are spent. According to economists Russell Sobel and George Crowley, states will be facing intense political pressure in the aftermath of stimulus funds to increase revenues by $80 billion. Illinois took this path in their FY2012 by raising taxes.
Cutting spending means fewer services by the public sector, which allows businesses to compete in these fields. Mortgage businesses can enter the legally prohibitive sector of the conforming mortgage market controlled by Fannie Mae and Freddie Mac. Mail delivery services can compete with USPS if allowed to compete on an even ground of similar corporate taxes and antitrust laws. Regulatory and budget spending binges are around the corner with the advent of The Patient Protection and Affordable Care Act in 2014 and energy regulations that will increase average electricity costs on Americans by at least 12 percent. The path to an earlier Cost of Government Day requires lasting spending reductions. These reductions must go hand-in-hand with repealing regulatory policies and laws that discourage innovation and competition. Whether the governments hand is in cars or energy production, American economic recovery yearns for independent markets where competition provides better, more affordable goods and services.
Immediate COGD 2011 Alternatives
39
METHODOLOGY
The Cost of Government is determined by adding the figures for the government spending (federal, state and local expenditures) and an estimate of the compliance costs of government regulations (both on the federal and state level). The total cost of government is then divided by estimated net national product to determine the percentage of national income consumed by government. This percentage is applied to the 365.25 weighted calendar year to determine the date of Cost of Government Day. All spending figures are based on the calendar years and, among others, utilize Congressional Budget Office (CBO) reports, Bureau of Economic Analysis National Income Product Account (NIPA) data, and the National Governors Association and the National Association of State Budget Officers (NASBO). State tax increases are derived from the NASBO data with three adjustments. The calculation of Cost of Government Day for each state is based on the varying government burdens suffered in each state. Federal spending burdens vary because relatively higher burdens are borne by states with relatively higher incomes. Of course, state and local tax and spending burdens vary by state as well. A 2010 report for the U.S. Small Business Administration Office of Advocacy by Nicole Crain and Mark Crain provided the framework for determining the cost of federal regulations. Data on federal and state workers was provided by the US Bureau of Labor Statistics and the US Office of Personnel Management.
ENDNOTES
1 Paul Ryan v. the President, Wall Street Journal, March 4, 2010, http://online.wsj.com/article/SB10001424052748704548604575097602436388116.html 2 Martin Feldstein, The Economy is Worse than You Think, Wall Street Journal, June 8, 2011, http://online.wsj.com/article/SB10001424052702303657404576363984173620692.html?mod=WSJ_hp_mostpop_read 3 Congressional Budget Office, The Budget and Economic Outlook: Fiscals Years 2011 to 2021, January 2011, pp. 12, box 1-2, http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf 4 Veronique de Rugy, The Impact of Spending Cuts on the Economy, National Review, February 25, 2011, http://www.nationalreview.com/corner/260747/impactspending-cuts-economy-veronique-de-rugy 5 James Feyrer and Bruce Sacerdote, Did the Stimulus Stimulate? Real Time Estimates of the Effects of the American Recovery Readjustment and Recovery Act, NBER Working Paper 16759, February 2011, http://www.nber.org/papers/w16759 6 2009 and 2010 deficit numbers come from BEA Table 3.2, Federal Government Current Receipts and Expenditures, 2011 deficit number is based upon COGD forecasting 7 Office of Management and Budget, Summary of Receipts, Outlays, and Surpluses or Deficits (-) as Percentages of GDP: 1930-2016, 2011, http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/hist01z2.xls 8 Carmen R. Reinhart and Kenneth S. Rogoff, Growth in a Time of Debt, American Economic Review, Vol. 100, No. 2, May 2010, pp. 575, http://www.economics.harvard.edu/files/faculty/51_Growth_in_Time_Debt_aer.pdf 9 Congressional Budget Office, CBOs 2011 Long-Term Budget Outlook, June 2011, table 1-2, pp. 8, http://cbo.gov/ftpdocs/122xx/doc12212/06-21-LongTerm_Budget_Outlook.pdf
40
ENDNOTES
10 The Economist, Economic Focus: Botox and Beancounting, April 30, 2011, http://www.economist.com/node/18618589 http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/hist01z2.xls http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf 13 Bureau of Economic Analysis, Tables 3.1 and 1.7.5 14 Global Debt Crisis: #50 Illinois, Forbes.com, January 20, 2010, http://www.forbes.com/lists/2010/44/debt-10_Illinois_090044.html 15 Illinois Policy Institute, Fiscal Follies: Why Illinois Budget is Broken and What to Do About It, April 21, 2010, http://www.illinoispolicy.org/news/article.asp?ArticleSource=2475 16 California Budget Project, Governor Signs 2011-2012 Spending Plan, updated July 1, 2011, pp. 2, http://www.cbp.org/documents/110630_201112_Spending_Plan.pdf 17 Russell S. Sobel and George R. Crowley, Do Intergovernmental Grants Create Ratchets in State and Local Taxes? Mercatus Working Paper No. 10-51, August 2010, pp. 25, http://mercatus.org/sites/default/files/publication/Do%20Intergovernmental%20Grants%20Create%20Ratchets.WP_.Corrected.10.4.10_0.pdf 18 The National Governors Association and the National Association of State Budget Officers, The Fiscal Survey of States, Fall 2010, pp. 46, http://www.nasbo.org/LinkClick.aspx?fileticket=C6q1M3kxaEY%3D&tabid=65 tax hike. 19 Author considers the tax hike of CA motor fuel taxes under sales taxes as categorized by the NASBO. The sales deduction is only $9 million less than the motor fuels 20 US Office of Personnel Management, Employment March 2011, Fedscope.opm.gov, authors calculations, http://www.fedscope.opm.gov/cognos/cgi11 Office of Management and Budget, Summary of Receipts, Outlays, and Surpluses or Deficits (-) as Percentages of GDP: 1930-2016, 2011, and authors calculations,
12 Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021, January 2011, pp. 54, authors calculations,
bin/ppdscgi.exe?DC=Q&E=/FSe%20-%20Status/Employment%20-%20March%202011&LA=en&LO=en-us&BACK=/cognos/cgi-bin/ppdscgi.exe?toc=%2FFSe%20%20Status&LA=en&LO=en-us bin/ppdscgi.exe?DC=Q&E=/FSe%20-%20Status/Employment%20-%20March%202011&LA=en&LO=en-us&BACK=/cognos/cgi-bin/ppdscgi.exe?toc=%2FFSe%20%20Status&LA=en&LO=en-us collected for 3/1/11 and 3/1/10, authors calculations, http://www.bls.gov/sae/#data 23 US Bureau of Labor Statistics, Union Members 2009, January 22, 2010 24 Ryan Ellis, How Much Does It Cost to Hire One New Federal Employee? $4.7 Million to $13.9 Million Over a Career, Americans for Tax Reform, January 27, 2010, http://www.atr.org/userfiles/011509pr-costoffederalbureaucrat.pdf 25 US Office of Personnel Management, Employment March 2011, Fedscope.opm.gov, authors calculations, http://www.fedscope.opm.gov/cognos/cgi-
21 US Office of Personnel Management, Employment March 2010, Fedscope.opm.gov, authors calculations, http://www.fedscope.opm.gov/cognos/cgi-
22 US Bureau of Labor Statistics, Employment, Hours, and Earnings State and Metro Area (Current Employment Statistics CES), state and local government data
bin/ppdscgi.exe?DC=Q&E=/FSe%20-%20Status/Employment%20-%20March%202011&LA=en&LO=en-us&BACK=/cognos/cgi-bin/ppdscgi.exe?toc=%2FFSe%20%20Status&LA=en&LO=en-us
26 Dennis Cauchon, Federal Pay Ahead of Private Industry, USA Today, March 8, 2010, http://www.usatoday.com/news/nation/2010-03-04-federal-pay_N.htm 27 Melissa Famulari, Whats in a Name? Title Inflation in the Federal Government, August 2002, pp. 2, http://www.econ.ucsd.edu/~mfamular/FederalPrivatepay.pdf 28 Andrew Biggs and Jason Richwine, Comparing Federal and Private Sector Compensation, American Enterprise Institute for Public Policy Research, AEI Economic Policy Working Paper 2011-02, March 2011, pp. 35-6, http://www.aei.org/docLib/AEI-Working-Paper-on-Federal-Pay-May-2011.pdf 29 US Bureau of Labor Statistics, Employer Costs for Employee Compensation March 2011, USDL-11-0849, June 8, 2011, pp.1, http://www.bls.gov/news.release/pdf/ecec.pdf 30 Taxpayers Federation of Illinois, Illinois Now a High Tax State, Tax Facts, Vol. 64(2), March/April 2011, pp. 6, http://www.taxpayfedil.org/secure/reveal/admin/uploads/documents/March%20April%202011%20Tax%20Facts.PDF 31 US Bureau of Labor Statistics, Employment, Hours, and Earnings State and Metro Area (Current Employment Statistics CES), state and local government data collected for 3/1/11 and 3/1/10, authors calculations, http://www.bls.gov/sae/#data 32 Federal Reserve Board, Flow of Funds Accounts of the United States, June 2011, Table D.3, pp. 9, http://www.federalreserve.gov/releases/z1/Current/z1.pdf 33 Joshua Rauh, Association Professor of Finance at Kellogg School of Management, The Fiscal Crisis of State and Local Government Pension Systems, Presentation at the Harvard Kennedy School of Government, April 13, 2001, pp. 6, http://www.hks.harvard.edu/var/ezp_site/storage/fckeditor/file/pdfs/centersprograms/centers/rappaport/powerpoints/rauh_pensions.pdf 34 Courtney A. Collins and Andrew J. Rettenmaier, Unfunded Liabilities of State and Local Government Employee Retirement Benefit Plans, National Center for Policy Analysis Policy Report No. 329, July 2010, pp. 2, http://www.ncpa.org/pdfs/st329.pdf 35 ibid, pp. 9
41
36 Nicole V. Crain and W. Mark Crain, The impact of Regulatory Costs on Small Firms, Small Business Administration Office of Advocacy, September 2010, pp. 10, http://archive.sba.gov/advo/research/rs371tot.pdf 37 Small Business Administration Office of Advocacy, Frequently Asked Questions, http://www.sba.gov/advo/stats/sbfaq.pdf 38 Susan Dudley & Melinda Warren, Fiscal Stalemate Reflect in Regulators Budget: An Analysis of the US Budget for Fiscal Years 2011 and 2012, 2012 Annual Report, Regulators Budget Report 33, May 11, 2011, table 1, pp. 5, http://wc.wustl.edu/files/wc/2012_Regulators_Budget.pdf Policy Bulletin No. 28, April 2011, pp. 4-5, http://www.phoenix-center.org/PolicyBulletin/PCPB28Final.pdf 39 T. Randolph Bear, George S. Ford, Hyeongwoo Kim, Lawrence J. Spiwak, Regulatory Expenditures, Economic Growth and jobs: An Empirical Study, Phoenix Center 40 Dr. Milton Wolf, WOLF: Obamacare waiver corruption must stop, The Washington Times, Mary 20, 2011, http://www.washingtontimes.com/news/2011/may/20/obamacare-waiver-corruption-must-stop/ 41 Government Accountability Office, Private Health Insurance: Waivers of Restrictions on Annual Limits on Health Benefits, June 14, 2011, pp. 2, http://www.gao.gov/new.items/d11725r.pdf 42 Matthew Boyle, Nearly 20 percent of new obamacare waivers gourmet restaurants, nightclubs, fancy hotels in Nancy Pelosis district, The Daily Caller, May 17, 2011, http://dailycaller.com/2011/05/17/nearly-20-percent-of-new-obamacare-waivers-are-gourmet-restaurants-nightclubs-fancy-hotels-in-nancy-pelosi%E2%80%99s-district/ 43 Congressional Budget Office, Report on the Trouble Asset Relief Program, March 2011, pp. 2, table 1, http://www.cbo.gov/ftpdocs/121xx/doc12118/03-29-TARP.pdf 44 Office of the Special Inspector General for the Troubled Asset Relief Program, Extraordinary Financial Assistance Provided to Citigroup, Inc., Summary of the Report: 45 Office of the Special Inspector General for the Troubled Asset Relief Program, Quarterly Report to Congress, January 26, 2011, pp. 23, http://www.sigtarp.gov/reports/congress/2011/January2011_Quarterly_Report_to_Congress.pdf 46 Al Lewis, Al Lewis: The Name is Dimon, not Demon, Fox Business, May 25, 2011, http://www.foxbusiness.com/industries/2011/05/25/al-lewis-dimon-demon/ 47 Thomas M. Hoeing, Too Big to Succeed, New York Times, December 1, 2010, http://www.nytimes.com/2010/12/02/opinion/02hoenig.html?_r=2&ref=opinion 48 Obama Stresses Plans Job Potential, Washington Post, January 10, 2009, http://www.washingtonpost.com/wpdyn/content/article/2009/01/10/AR2009011001999.html (accessed 6/1/11) http://www.bls.gov/opub/mlr/2011/04/art1full.pdf 49 Christopher J. Goodman and Steven M. Mance, Employment loss and the 2007-09 recession: an overview, Monthly Labor Review, April 2011, table 1, pp. 6, 50 US Bureau of Labor Statistics, Employment, Hours, and Earnings from the Current Employment Statistics Survey (National), Not Seasonally Adjusted, Authors calculations between December 2007 and June 2009. 51 James Feyrer and Bruce Sacerdote, Did the Stimulus Stimulate? Real Time Estimates of the Effects of the American Readjustment and Recovery Act, NBER Working Paper 16759, February 2011, http://www.nasbo.org/LinkClick.aspx?fileticket=H6sHQ5MhK5o%3D&tabid=81 52 CATO, With all due respect Mr. President, that is not true. 2009, http://www.cato.org/special/stimulus09/alternate_version.html 53 Congressional Budget Office, The Budget and Economic Outlook: Fiscals Years 2011 to 2021, January 2011, pp. 13, box 1-2, http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf 54 ibid, pg. 58, table 3-3 55 ibid, pg. 13, box 1-2 56 House Committee on the Budget, Chairman Paul Ryan, The Path to Prosperity: Restoring Americas Promise, Fiscal Year 2012 Budget Resolution, pp. 65, table S-4, http://budget.house.gov/UploadedFiles/PathToProsperityFY2012.pdf 57 Shubham Singhal, Jeris Stueland, and Drew Ungerman, How US health care will affect employee benefits, McKinsey Quarterly, June 2011, pp. 2, https://www.mckinseyquarterly.com/PDFDownload.aspx?ar=2813 58 Shubham Singhal, Jeris Stueland, and Drew Ungerman, How US health care will affect employee benefits, McKinsey Quarterly, June 2011, http://www.mckinseyquarterly.com/Health_Care/Strategy_Analysis/How_US_health_care_reform_will_affect_employee_benefits_2813 2010, pp. 2, http://www.kff.org/healthreform/upload/7961-02.pdf 59 The Henry J. Kaiser Family Foundation, Explaining Health Reform: Medicare and the New Independent Payment Advisory Board, Focus on Health Reform, May SIGTARP-11-002, January 13, 2011, http://www.sigtarp.gov/reports/audit/2011/Extraordinary%20Financial%20Assistance%20Provided%20to%20Citigroup,%20Inc.pdf
January 18, 2011, http://www.heritage.org/research/reports/2011/01/obamacare-and-the-independent-payment-advisory-board-falling-short-of-real-medicarereform#_ftnref7 61 Letter from Congressional Budget Office Director Douglas Elmendorf to Senator Harry Reid, December 19, 2009, pp. 11, http://www.cbo.gov/ftpdocs/108xx/doc10868/12-19-Reid_Letter_Managers_Correction_Noted.pdf.) 62 Congressional Budget Office, The Budget and Economic Outlook: Fiscals Years 2011 to 2021, January 2011, pp. 58, table 3-3,
60 Robert Moffit, Ph.D, Obamacare and the Independent Payment Advisory Board: Falling Short of Real Medicare Reform, The Heritage Foundation, Webmemo #3102,
http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf
http://www.cbo.gov/ftpdocs/121xx/doc12130/04-15-AnalysisPresidentsBudget.pdf
63 Congressional Budget Office, An Analysis of the Presidents Budgetary Proposal for Fiscal Year 2012, April 2011, pp. 15, table 1-6, authors calculations,
42
64 Americans for Tax Reform, Obamacare and Taxes: The Final Tab, April 5, 2010, http://s3.amazonaws.com/atrfiles/files/files/040510pr-totalhealthtaxes.pdf 65 Bryan J. Noeth, Research Assistant at the Federal Reserve Bank of St. Louis, Financial Regulation: A Primer on the Dodd-Frank Act, Liber8 Economic Information Newsletter, May 2011, pp. 1, http://liber8.stlouisfed.org/newsletter/2011/201105.pdf 66 U.S. Chamber of Commerce, Financial Regulations, http://www.uschamber.com/regulations/finance 67 Eric Schurenberg, Quoting Secretary Geithner, Financial Reform Reneges on Too Big to Fail, The Fiscal Times, April 12, 2011, http://www.thefiscaltimes.com/Columns/2011/04/12/Financial-Reform-Reneges-on-Too-Big-to-Fail.aspx 68 Joe Adler, Quoting Bradley Sabel, a partner at Shearmann & Sterling LLP, Did Dodd-Frank Resolve the Too Big to Fail Issue or Give It New Life? Insurance Networking News, December 27, 2010, http://www.insurancenetworking.com/news/insurance_FDIC_Shiela_Bair_Dodd_Frank_regulatory_reform-26760-1.html 69 Shira Ovide, Tim Geithner: Future Bailouts are Possible, Wall Street Journal, January 13, 2011, http://blogs.wsj.com/deals/2011/01/13/tim-geithner-future-bailoutsare-possible/ 70 Deborah Lucas, Assistant Director for Financial Analysis, The Budgetary Costs of Fannie Mae and Freddie Mac and Options for the Future Federal Role in the Secondary Mortgage Market, Testimony before the Committee on the Budget, U.S. House of Representatives, June 2, 2011, pp. 11, http://www.cbo.gov/ftpdocs/122xx/doc12213/06-02-GSEs_Testimony.pdf 71 ibid, pp. 12, table 1 72 David Reiss, Fannie Mae, Freddie Mac, and the Future of Federal Housing Finance Policy: A Study of Regulatory Privilege, Policy Analysis No. 674, April 18, 2011, pp. 2, http://www.cato.org/pubs/pas/PA674.pdf 73 Blank Rome Government Relations, Airing on Grievances: Banking Association Heads Continue to Blast Proposed Rule on Interchange Fees, March 2, 2011, http://www.financialreformwatch.com/tags/durbin-amendment/ 74 John P. Buckley, Jr., President and CEO of Gerber Federal Credit Union, Testimony on Behalf of the National Association of Federal Credit Unions, before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, on The Effect of Dodd-Frank on Small Financial Institutions and Small Businesses, House of Representatives, March 2, 2011, pp. 7, http://financialservices.house.gov/media/pdf/030211nafcu.pdf 75 ibid, pg. 9 76 Debit Card Interchange Fees and Routing, Federal Register 75:248 (December 28, 2010), pp. 81737, http://www.gpo.gov/fdsys/pkg/FR-2010-12-28/pdf/201032061.pdf 77 Morrison & Foerster, LLP, RE: Docket No. R-1404; RIN No. 7100 AD63; Debit Card Interchange Fees and Routing, pp. 2, http://www.federalreserve.gov/SECRS/2011/March/20110331/R-1404/R-1404_022211_67818_571439092114_1.pdf 78 MasterCard Worldwide Law Department, RE: Docket No. R-1404 and RIN No. 7100 AD63, pp. 2, http://www.federalreserve.gov/SECRS/2011/March/20110303/R1404/R-1404_022211_67641_571589563753_1.pdf 79 David S. Evans, Robert E. Litan, and Richard Schmalensee, Economic Analysis of the Effects of the Federal Reserve Boards Proposed Debit Card Interchange Fee Regulations on Consumers and Small Businesses, February 22, 2011, pp. 6, http://ssrn.com/abstract=1769887 80 ibid, pg. 51 81 John Maggs, Big banks brace for curbs, Politico, January 12, 2011, http://www.politico.com/news/stories/0111/47447.html 82 Trefis Team, Citi Shuts Another Prop Group as Banks Prepare for Volcker Rule, NASDAQ.com, June 7, 2011, http://community.nasdaq.com/News/2011-06/citishuts-another-prop-group-as-banks-prepare-for-volcker-rule.aspx?storyid=79456 83 Keybridge Research, An Analysis of the Coalition for the Derivatives End-Users Survey on Over-the-Counter Derivatives, February 11, 2011, pp. 4, http://www.centerforcapitalmarkets.com/wp-content/uploads/2010/04/Coalition-for-Derivatives-End-Users-OTC-Derivatives-Survey_Final-Version-2-11-11.pdf 84 ibid, pg. 2 and 7 85 Center for Capital Markets Competitiveness, Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010: Regulatory Authority, http://www.centerforcapitalmarkets.com/resources/dodd-frank-wall-street-reform-and-consumer-protection-act-of-2010-regulatory-authority/ 86 Written Testimony of David S. Evans, Chairman of the Global Economics Group and Lecturer at University of Chicago Law School, Hearing on Whos Watching the Watchmen? Oversight of Consumer Financial Protection Bureau, Before the United States House of Representatives Committee on Oversight and Government Reform, Subcommittee on TARP, Financial Services, and Bailouts of Public and Private Programs, May 24, 2011, pp. 3-4, http://democrats.oversight.house.gov/images/stories/SUBCOS/524%20tarp%20watchmen%20cfpb/Evans%20Testimony.pdf 87 Todd Zywicki, George Mason University Foundation Professor of Law and Mercatus Center Senior Scholar, Whos Watching the Watchman? Oversight of the Consumer Financial Protection Bureau, Before the United States House of Representatives Committee on Oversight and Government Reform, Subcommittee on TARP, Financial Services, and Bailouts of Public and Private Programs, May 24, 2011, pp. 2, http://mercatus.org/sites/default/files/publication/Zywiki-Testimony-5.24.11.pdf 88 Lissa Lamkin Broome, University of North Carolina Wachovia Professor of Banking Law, The Dodd-Frank Act: TARP Bailout Backlash and Too Big to Fail, North Carolina Banking Institute, Vol. 15, pp. 80, http://www.law.unc.edu/documents/journals/articles/951.pdf 89 Indur Golansky, Empirical Evidence Regarding the Role of Federalization in Improving U.S. Air Quality, The Common Law and the Environment, edited by Roger Meiners and Andrew P. Morriss, Lanham, Md.: Rowman & Littlefield, 2000, pp. 48 90 ibid., pp. 41-2
43
91 ibid., pp. 49 92 Interview with the San Francisco Chronicle, http://www.youtube.com/watch?v=ydqg7ThZB04 93 U.S. Energy Information Administration, Net Generation by Energy Source: Total (All Sectors), table 1.1, released March 11, 2011, authors calculations, http://www.eia.gov/cneaf/electricity/epm/table1_1.html 94 NERA Economic Consulting, Proposed CATR + MACT, Prepared for the American Coalition for Clean Coal Electricity, 2011, pp. 4, http://www.americaspower.org/NERA_CATR_MACT_29.pdf 95 Scott H. Segal, Co-head of the federal government relations practice at Bracewell & Giuliani LLP, Summary of the Statement of Scott H. Segal for the American Energy Initiative: Transparency in Regulatory Analysis, April 7, 2011, http://democrats.energycommerce.house.gov/sites/default/files/image_uploads/Testimony_04.07.11_Segal.pdf 96 ICF International, ICF Q1 2011 Integrated Energy Outlook, May 9, 2011, at http://www.icfi.com/news/2011/icf-integrated-energy-outlook-sees-possibility-50-gwcoal-plant-retirements 97 NERA Economic Consulting, Proposed CATR + MACT, Prepared for the American Coalition for Clean Coal Electricity, 2011, pp. 3, http://www.americaspower.org/NERA_CATR_MACT_29.pdf 98 Quoting Steve Miller, President and CEO of the American Coalition for Clean Coal Electricity, New Analysis Finds EPAs Power Plant Regulations Would Increase 99 NERA Economic Consulting, Proposed CATR + MACT, Prepared for the American Coalition for Clean Coal Electricity, 2011, pp. 29, http://www.americaspower.org/NERA_CATR_MACT_29.pdf 100 Prepared Testimony of W. David Montgomery, Ph.D. before the Subcommittee on Energy and Power, Committee on Energy and Commerce, United States House of Representatives, Hearing on EPAs Greenhouse Gas Regulations and Their Effect on American Jobs, March 1, 2011, pp. 3, http://republicans.energycommerce.house.gov/Media/file/Hearings/Energy/030111/Montgomery.pdf wire/165651-aep-epa-regs-will-cost-billions-and-result-in-five-closed-plants coal-plant-retirements
Electricity Costs; Lose Jobs, June 8, 2011, http://www.americaspower.org/news/new-analysis-finds-epas-power-plant-regulations-would-increase-electricity-costs-lose-jobs
101 Andrew Restuccia, Utility giant AEP says it will close five coal plants to comply with EPA regs, The Hill, June 9, 2011, http://thehill.com/blogs/e2-wire/677-e2102 ICF International, ICF Q1 2011 Integrated Energy Outlook, May 9, 2011, at http://www.icfi.com/news/2011/icf-integrated-energy-outlook-sees-possibility-50-gw103 Clean Air Act, 109(b)(1), pp. 31, http://www.scag.ca.gov/tcwg/pdfs/tcm/Federal-Clean-Air-Act-Section108.pdf 104 Donald A. Norman, Economic Implications of EPAs Proposed Ozone Standard, MAPI Manufacturers Alliance, Economic Report ER-707, September 2010, pp. 7, http://www.mapi.net/Filepost/ER-707.pdf 105 ibid, pp. 6 106 Patrick A. McLaughlin, Not Considering Costs in Setting NAAQS: A Costly Mistake, Mercatus Working Paper No. 08-42, November 2008, pp. 12-13, http://mercatus.org/sites/default/files/publication/Not%20Considering%20Costs%20in%20Setting%20NAAQS_%20A%20Costly%20Mistake.pdf 107 Testimony of Lonnie N. Carter, President and Chief Executive Officer of Santee Cooper, Before the Subcommittee on Energy and Water of the House, Energy and Commerce Committee, U.S. House of Representatives, February 9, 2011, pp. 11, http://republicans.energycommerce.house.gov/Media/file/Hearings/Energy/020911_Energy_Tax_Prevention_Act/Carter%20Testimony.pdf 108 Comments to EPA from the Electric Power Research Institute, November 18, 2010, pp. 2, http://goo.gl/j63Yi 109 Prepared Statement of Joseph Henchman, Tax Counsel & Director of State Projects, Tax Foundation, Hearing on the Business Activity Tax Simplification Act of 2011, Before the U.S. House Committee on the Judiciary, Subcommittee on Courts, Commercial, and Administrative Law, April 13, 2011, figure 1, pp. 5, http://judiciary.house.gov/hearings/pdf/Henchman04132011.pdf http://www.bls.gov/oes/current/naics3_491000.htm
110 US Bureau of Labor Statistics, May 2010 National Industry-Specific Occupational Employment and Wage Estimates NAICS 491000 Postal Service, 111 Associated Press, Post Office Loses $8.5 Billion Last Year, Fox News, November 12, 2010, http://www.foxnews.com/politics/2010/11/12/post-office-loses-billion-year/ 112 Vincent H. Devito Jr., Vice President, Controller, Subject: Management Advisory Workers Compensation Liability Estimate, Report Number FT-MA-11-002, December 23, 2010, pp. 14, http://www.uspsoig.gov/foia_files/FT-MA-11-002.pdf 113 Andrew Biggs and Jason Richwine, Comparing Federal and Private Sector Compensation, American Enterprise Institute for Public Policy Research, AEI Economic Policy Working Paper 2011-02, March 2011, http://www.aei.org/docLib/AEI-Working-Paper-on-Federal-Pay-May-2011.pdf 114 Office of Congressman Darrell Issa, Issa Introduces Postal Reform Act, June 23, 2011, http://issa.house.gov/index.php?option=com_content&view=article&id=838:issa-introduces-postal-reform-act&catid=63:2011-press-releases&Itemid=4 115 Ryan Ellis, Obama Tax Commission: Baby Step Toward IRS Tax Preparation, Americans for Tax Reform, September 1, 2010, http://www.atr.org/obama-taxcommission-reportbr-baby-step-a5363 116 Americans for Tax Reform, Senate Conservatives Speak Out Against Return Free Tax Filing Scheme, October 25, 2005, http://www.atr.org/senate-conservatives-speakagainst-return-free-a2362 117 Ryan Ellis, ATR Letter to Senator Wyden and Coats on IRS Tax Preparation in S. 727, Americans for Tax Reform, April 11, 2011, http://www.atr.org/atr-lettersenators-wyden-coats-onbr-a6043 118 William Ahern, ReadyReturn a Bad Idea Thats Hard to Kill, Tax Foundation, October 7, 2009, http://www.taxfoundation.org/blog/show/25287.html
44
www.fiscalaccountability.org
www.atr.org
AMERICANS FOR TAX REFORM FOUNDATION / CENTER FOR FISCAL ACCOUNTABILITY
722 12th Street, NW, Fourth Floor Washington, DC 20005 (202) 785-0266 F: (202) 785-0261

Cost of Government Day - 2011

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Cost of Government Day - 2011

Uploaded by

Copyright:

Available Formats

ABOUT THE AUTHOR

THE THOMAS JEFFERSON FELLOWSHIP

COST OF GOVERNMENT DAY 2011 REPORT

Grover Norquist President Americans for Tax Reform Foundation

Mattie Corrao Executive Director Center for Fiscal Accountability

Cost of Government Day 2010

Cost of Government Day: Trends

Cost of Government 1977-2011

7/6 6/30 6/26

COST OF GOVERNMENT DAY 2011 REPORT

COST OF GOVERNMENT DAY COMPONENTS

State and Local Spending

Cost of Government Day Components

102.83 days worked to pay for federal spending

STATE BY STATE BREAKDOWN

2 2011 Cost of Government Day for States

COST OF GOVERNMENT DAY 2011 REPORT

Top 5 2011 Increases COGD by Rank

5 Largest COGD Increases Relative to National Average

North Dakota Florida Alaska Nebraska New Hampshire

Alaska North Dakota Florida Louisiana Nebraska

Top 5 2011 Decreases COGD by Rank

5 Largest COGD Decreases Relative to National Average

Georgia Idaho Oklahoma Hawaii Vermont

-14 -14 -13 -11 -10

Georgia Idaho South Carolina Tennessee Oklahoma/Vermont

-10 -10 -10 -10 -8

COST OF GOVERNMENT DAY 2011 REPORT

THE GOVERNMENT SPENDING BURDEN

Days Worked for Federal Spending

Special Focus: Spending and the Federal Budget Deficit

COST OF GOVERNMENT DAY 2011 REPORT

Federal Spending and Budget Deficit/Surplus as a Percentage of GDP FY 2000-2021

25.0 19.1 19.7 19.6 19.9 20.1 19.6 20.7

Federal Spending Constrained by Economic Growth ($billion)

521 270 147 147 147 39 86

93 -1 -248 -408 -504 -421

Deficit/Surplus Constrained at National Income

Deficit Constrained By CPI

State and Local Spending

Days Worked for State and Local Spending

45.24 44.79 44.36 43.83 43.90 45.00

COST OF GOVERNMENT DAY 2011 REPORT

STATE TAX INCREASES

Cumulative State Tax Increases FY 2002-2011

COST OF GOVERNMENT DAY 2011 REPORT

The most significant bureaucracy expansions include:

COGD Absent Overpaid Federal Workers

COST OF GOVERNMENT DAY 2011 REPORT

THE REGULATORY BURDEN

Days Worked for Total Regulatory Burden

COST OF GOVERNMENT DAY 2011 REPORT

Pages in the Federal Register

67,716 63,554 58,494 57,704 53,480 50,998

62,928 53,842 53,620 53,376

COST OF GOVERNMENT DAY 2011 REPORT

A CONTINUING CASE STUDY: TARP AND ARRA

COGD 2011 Absent Remaining TARP & ARRA Funds

COST OF GOVERNMENT DAY 2011 REPORT

Total Taxes: $479.9 billion

COST OF GOVERNMENT DAY 2011 REPORT

CBO: PPACA Cost of Government Day Increases