The Government’s Take

Sometimes I have to remind people (if they ever knew) just how much the government is taking from them.  Most people will look at their income taxes and payroll taxes and think that is what they are forking over to the government.

There is obviously so much more.  Employers also pay payroll taxes for their employees, which means lower wages.  There are excise taxes.  There are corporate taxes that lead to lower wages and/ or higher consumer prices.  There are many other taxes.  There is also the issue of inflation.

The only proper way to measure what Americans are paying is by looking at government spending.  All money spent by government is really obtained through taxation in some form.  Even if it is done through debt and inflation, it is still diverting these resources.

The federal government is now spending close to $4 trillion per year.  There are about 120 million families in the United States.  This means that your family’s share of the government is over $30,000 per year.  This is just for the government in Washington DC.  It does not include all of the state and local spending that you fund as well.

Imagine if the federal government had no debt and actually stayed within the confines of the enumerated powers listed in the Constitution.  Imagine some basic defense spending (no offense) and a few other basic functions such as the courts.  Imagine the federal government only spending a few hundred billion dollars per year.

I understand this implies no spending on Social Security, Medicare, Medicaid, schools, transportation, and a bunch of other things.  But if you had an extra $30,000 per year of cash flow, would you really care about those things?  And if they really are critical, then couldn’t the states pick them up instead?

This just shows the absurdity of the whole system we are living under.  Such a huge percentage of our production is taken away from us, it is almost a miracle that our living standards are as high as they are.

With the presidential race going full swing, there is obviously a lot of discontent out there with the surge of the outsiders.  Maybe they aren’t outsiders, but they are at least perceived that way.

But the reason that the American middle class is struggling so much is because the government takes about half of their money away.  This makes it rather hard to get by.  This isn’t even accounting for the massive regulations and bureaucracy that we face.

The craziest thing is that if you add up government spending at all levels and divide it up by each American family, it is about equivalent to the median family income.  Again, how is it even possible that our society functions as well as it does?

That is a statistic you would expect out of Western Europe or some socialist country.  When government is spending more than the median family income, something has got to give.

By the way, the reason that statistic is even possible is because obviously the median income has already had a lot taken off the top of it.  If government spending were cut to a fraction of its current size, then our higher living standards would show up as a combination of higher wages and lower prices.

We need a major correction.  The market tried to give us one in 2008.  For state and local government, it did help scale it back a little in some areas.  Unfortunately, the federal government has ballooned up more as a result.  It is not sustainable.

When something is unsustainable, it will come to an end at some point, even if most people don’t realize it.  There will be a harsh correction.  Eventually, the federal government will be forced to cut back.

The only question is how long it will take for it to happen.  If there is a severe recession, things will depend on Federal Reserve policy.  If the Fed helps fund the deficits by creating money out of thin air, then the ridiculous spending could go on for a while longer while making everything worse.

We should all be prepared for these scenarios.  The recession will come.  It is a question of whether it is allowed to play itself out or if the government and central bank will just make things even worse.

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