State Financial Impositions

By Hans Sherrer

(October 31, 2009)

Taxes is the word typically used to describe the financial burden borne by individuals and entities to fund the State’s governing apparatus and operations it supports. ¹ Sales, income, use and property taxes are the most visible taxes, while there are less visible taxes such as import tariffs and duties. However, taxes are only the tip of the iceberg of the financial “footprint” left on society by the State’s laws, policies, regulations and mandates that reduce the wealth of the individual or business entity that created or otherwise “owns” it. Taxes cause a reduction of wealth by directly transferring it from its owner to the State, while regulations and mandates cause a reduction of wealth by causing its owner to pay more for some product or service than they would otherwise pay.

In Seattle, Washington, e.g., land use (aka zoning) regulations are estimated to add more than $100,000 to the cost of an average new single family house. The cost of complying with those regulations is as much a levy on a purchaser’s wealth as if it had been directly levied as a tax on the purchase price – which the State of Washington does with its sales and use tax.

State regulations that result in shifting the costs of doing business with risky customers onto more responsible people are also a form of levy on the people affected. An example of this are State-mandated real estate and credit card anti-discrimination lending regulations that result in the shifting of losses associated with poor credit risks onto more reliable borrowers, by causing them to pay more than they otherwise would.

Another example is that a new car buyer pays thousands in unseen costs that are added to the purchase price by State-mandated fuel and safety regulations. The Nano is a small 4-door high-mileage car being introduced in India in 2009 with an estimated price of US$2,500. The Nano’s manufacturer estimates it will cost about double that to meet U.S. regulations. So Indians are able to increase their standard of living by investing in other parts of the Indian economy the money that would be spent on conforming with regulations and mandates comparable to those imposed on products and services in the Unites States.

Mandatory insurance requirements are another form or regulation that increases costs for both individuals and businesses affected by it. Depending on the form of the legislation, payments either go to an insurance company or to the government for redistribution.

Professional licensing is another form of regulation that drives up the cost of goods and services people rely on everyday. Some states require a professional license (sometimes designated as a “certificate of competency”) for more than 100 occupations or work related tasks. These licensed occupations range in some states from barbers and food servers to doctors, lawyers and electricians. To varying degrees the requirement for these licenses artificially restricts the supply of labor, which depending on the demand at any given time, can enable these people to charge more for their services than if the licensing requirement did not exist.

The unseen cost to a purchaser, of a manufacturer’s expenses to comply with regulations and mandates – such as those imposed in the U.S. on automobile manufacturers – can exceed the visible taxes and/or licensing fees that may be levied on the purchaser. To a certain degree the State is able to conceal the full effect of its economic “footprint” by the focus on “taxes” that are “seen” by the public, but which can amount to less of a financial burden on a person or entity than the combined effect of regulations, mandates and policies imposed on manufacturers and sellers that are “unseen” by the public.

The State’s regulation of the money supply can result in another stealth levy on wealth – currency devaluation (aka inflation). The devaluation (inflation) rate at any given time is a reflection of the over-all decreased purchasing power of the official currency (e.g., the “dollar”). Although the effect of devaluation (inflation) is not the same on all assets – it directly decreases the purchasing power of wealth held in the form of currency or instruments denominated in the currency (such as certificates of deposit and bonds).

A difficulty in assessing the cost of regulations and mandates that are generally publicly “unseen,” is the lack of a benchmark by which to determine what the costs of a good or service would have been in their absence. One way the financial impact of “unseen” regulations and mandates can be assessed is by comparing a domestic product with the same or a comparable foreign manufactured product that is subject to minimal or no cost escalating regulations. The Nano provides a glimpse of the significant financial impact of regulations on the manufacture and sale of automobiles in the U.S.

Since taxes is inadequate to do so, another word must be used that captures the essence of the State’s pervasive seen and unseen levies on wealth. Imposition is one such word. The Oxford English Dictionary defines imposition as: “4. The action of imposing or laying as a burden, duty, charge, or task; the action of inflicting, levying, enjoining, or enforcing.” The definition of imposition also specifically encompasses, “The levying of a tax; taxation.” (4.b.) Imposition is an inclusive term for the wealth consumed by the seen and unseen effects of the State’s myriad laws, policies, regulations and mandates. In the absence of those State decrees that wealth would be used by its creator or owner to increase the standard of living of themselves and those who would benefit from their choice of how their money was invested or spent.

An “Imposition Index” could track the actual financial footprint of the federal, state and local governments on society. In 2008 the average tax burden in the U.S. was estimated at 28.2% (federal, state and local). ² So it is reasonable to conservatively estimate that the average imposition of all governments in the U.S. combined exceeds 40%. ³ The Imposition Index would increase visibility and awareness of the magnitude of the State’s over-all financial impact on society. Without a benchmark to analyze the full extent of the State’s societal “footprint”, it is difficult to assess the negative effects of that impact compared with its benefits – and its disproportionateness one way or the other.

In 1953 historian Harry Elmer Barnes wrote in Perpetual War For Perpetual Peace that if Americans lived under the same conditions of a minimal State footprint that existed in 1914, that the “people of the United States might, right now, be living in Utopian security and abundance.”(6) To the people of today, 1953 seems like an idyllic time when State impositions of all sorts were a fraction of what they are now. One gauge of that difference is federal spending in 2009 was 690% more than in 1953 (adjusted for inflation).⁴ Consequently, Barnes’ observation carries more weight than it did in 1953. The idea behind it is very simple, but toxic to the idea underpinning all programs, mandates and taxation that are encompassed in a State’s impositions: Polices that directly and indirectly transfer wealth from those who create or otherwise own it to the State, are destructive to society and the economic well-being of the people affected. The surest path to maximizing prosperity is to eliminate the State impositions that interfere with the ability of a person to use their wealth as they see fit – and not as the State decrees.

Endnotes:

1 Among the operations either wholly “paid for” or subsidized by taxes on the federal level are: the military and the post office. On the state level examples are schools (pre-school through grade 12, and two and four-year degree institutions.), and road construction and maintenance.

2 “Special Report,” April 2009, No. 165, The Tax Foundation, http://www.taxfoundation.org/files/sr165.pdf (last visited October 24, 2009). Local and state taxes are estimated to comprise 9.7% of the 28.2% tax burden. See, “State and Local Tax Burdens: All Years, One State, 1977-2008,” Tax Foundation, http://www.taxfoundation.org/taxdata/show/335.html (last visited October 24, 2009). With the graduated income tax, people who make more disproportionately pay more taxes. In the summer of 2009 a resident of New York state with $1.5 million in net taxable income pays about 51% in state and federal income tax. The total imposition in New York state is significantly higher than 51%, considering sales tax, property tax, etc.

3 One of the best currently available documents providing information about the extent of the federal governments impact on American society beyond taxes is, “Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State, 2008 Edition,” by Clyde Wayne Crews Jr., Competitive Enterprise Institute, available online at, http://cei.org/cei_files/fm/active/0/10KC_2008_FINAL_WEB.pdf (last visited October 24, 2009). In 2009 total government expenditures are 45% of the GDP, so for all practical purposes the actual footprint of “impositions” somewhat exceeds 50% of the GDP. ($6,456,300,000 in total government expenditures and $14,240,200,000 GDP in 2009. See, United States Federal, State and Local Government Spending: Fiscal Year 2009, http://www.usgovernmentspending.com/spend.php?year=2009 (last visited October 24, 2009).

4 Federal spending in 1953 was $72,811,000, and in 2009 was $3,997,800,000. See, United States Federal, State and Local Government Spending: Fiscal Year 2009, http://www.usgovernmentspending.com/spend.php?year=2009 (last visited October 24, 2009). Cumulative inflation of the dollar from 1953 to 2008 was 796.23% (See, about.com). So adjusted for inflation the 1953 federal spending of $72,811,000 was $579,743,025 in 2008 dollars. So 2009 federal expenditures of $3,997,800,000 are 690% more than in 1953.