“Speaking of Obama, he presented a $4 trillion budget that he says would help the middle class. And then the middle class said, ‘You know what, how about just giving us $4 trillion? That will help us. We will figure it out. We’ll figure out what to do with it.'”
~Jimmy Fallon on The Tonight Show
I recently read a piece on Marketwatch, which is a fairly conventional financial news site. It is titled “Tax rates are far higher than we realize”. But the beginning of the article starts out with an interesting statistic.
When you add up all government spending in the United States – which includes federal, state, and local – total government spending is greater per household than the median household income.
I had never thought about this statistic before. I had thought about total government spending in terms of each individual. I had thought about federal spending per household. But I had not considered total spending as compared to household income.
I did a quick search and found this article from last year citing this to be the case for 2009, 2010, and 2011. It is hard to believe that this is not a bigger story, but it should be.
In 2011, total government spending was just over $6.1 trillion. That included over $3.5 trillion in federal spending and over $2.5 trillion in state and local spending. In 2011, there were just over 121 million households in the United States. This put total government spending at $50,506, according to the article. Meanwhile, the median household income was $50,054.
When that article was published in 2014, it used 2011 because that was the last full year with full data available.
You are probably wondering how this is even possible. First, consider that this is not tax collections. It is government spending, which means it includes the deficit spending. At that time, the federal government was running one trillion dollar deficits. It is more modest now at about half a trillion dollars.
But that is a mistake that I see with many analyses. They only count tax collections. But if the government is spending money using debt and/ or inflation, then it is consuming resources. It is just a more indirect form of taxation. So we should use government spending and not government tax collections to consider how much is being taken from us.
The second important thing to note is that we are using median household income. This is different than the average. When the median household income is $50,054, it means that half of households make more and half make less. The average is higher because really high incomes of tens of millions of dollars are going to skew the average up.
Still, you know the system is majorly broken when the government at all levels is spending more per household than the median household income. In the quote by Jimmy Fallon to start this piece, it paints a telling picture. It was a far more libertarian comment than what he probably realized.
Imagine if you cut $5 trillion in total government spending. In other words, you are left with just over $1 trillion for federal, state, and local spending. Anarcho-capitalists, minarchists, panarchists, and other libertarians can argue about the rest on another day.
For the point of this article, let’s say that government at some level still spends money on roads, the court system, the police, a defensive military, and a few other things. Now, I realize I am suggesting the total elimination of government funding for Social Security, pensions, Medicare, Medicaid, schools, welfare, and most of the alphabet agencies.
But imagine the average household keeping an extra $41,000 per year. Even if your cut of this is just half, that would still be over $20,000 per year. Giving up these big government programs all of a sudden doesn’t seem so bad. What would your household do with an extra $20,000 or $40,000 per year?
We also have to realize that this would unleash the free market economy like nothing we’ve seen before. It would mean almost instant higher wages. It would mean lower prices for products and massive investment for new products. Our living standards would rise quickly.
If you get into a discussion with somebody about taxes, point out this statistic. How could anyone but a demagogue, or someone completely ignorant of what is going on, possibly think that we need higher taxes? We don’t need fairer taxes, or a different tax structure, or a simpler tax code. We simply need far lower taxes and far less government spending.
I know I could figure out what to do with an extra $40,000 per year in my pocket.