Government Spending: How Costly To You
Whenever the cost of government is reduced, powerful forces kick in; vigorous economic growth, full employment, increased government revenues and often removal from the tax rolls, of the lowest paying taxpayers.
President John F. Kennedy-1962:
…an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits... In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.
The Kennedy cuts-which materialized under LBJ, saw real economic growth jump by more than 40% and gave us the longest economic expansion in history, up to that point.
When the cost of government is increased it is likely, negatives kick in. Probably most governments in the world have grown beyond their most efficient point.
One possible exception is the tiny nation of Hong Kong, which has practically no natural resources, yet tops most nations of the world in per capita income and living standards.
The cost of government in Hong Kong is 20.7% of GDP. In the U.S. government spending is 35.7%, which breaks down to 21% spent by the federal government and 14% spent by state and local governments.
Hong Kong has a flat tax with a top individual rate of 16%, compared to our top of 35%. The top corporate rate in Hong Kong is 17.5% compared to our top 35%.
Under Chinese Communist rule until 1947, Hong Kong had a per capita income of $180. From 1947 until 1997 under a British model of low tax, low regulation, and no tariffs, revenues to the government began to soar, allowing for 2 different tax cuts and scores being removed from the tax rolls. By 1996 Hong Kong's GDP growth per capita, was within 7% of the U.S.
In 1997 China came back into the picture, causing some curtailment to the soaring wealth and quality of life of Hong Kong. Government spending has increased recently, but at 20.7%, growth remains healthy.
Similarly, until very recently, Ireland was referred to as the "sick man of Europe". One publication, declared sarcastically, that Ireland's biggest export was "its people".
As explained in a Joint Economic Committee report: "This situation was reversed during the 1987-96 period. As a share of GDP, government spending declined from the 52.3 percent level of 1986 to 37.7 percent in 1996, a reduction of 14.6 percentage points."
By 2004, government spending was down still further to 34.3% as measured by the 2006 Index of Economic Freedom.
Ireland cut corporate taxes to the enticing figure of 12.5%. European corporations average 30%.
The Organization For Economic Cooperation and Development (OECD) estimates that in Purchasing Power Parities (PPI) Ireland is ranked 4th in the world.
Our U.S. Department of State lists Ireland's 2003 Per capita income at $38,308.
Are natural resources the answer? Wise use of resources relates greatly to what a government can spend efficiently. Until recently. countries like Iran and Russia have had high government cost and poor use of resources. Iran is paying the price by raising the cost of government and misallocating resources, while Russia is improving by doing the opposite.
Why does government spending have a more powerful effect everyday?
You've seen what happens with reduced government cost.
Now listen to David M.Walker Comptroller General of the Government Accountability Office (GAO) whose office audits and evaluates the performance of the federal government, and who has committed to touring the nation through the 2008 elections, "talking to anybody who will listen, about the fiscal black hole Washington has dug itself."
Mr. Walker has stated "If the United States government conducts business as usual over the next few decades, a national debt that is already $8.5 trillion could reach $46 trillion or more, adjusted for inflation. That's almost as much as the total net worth of every person in America" -…
After safety, does any message to our elected officials deserve a higher priority, than reducing the cost of government?
Related Tags: government spending, hong kong, revenues
Michael McNesby is a former tax advisor, consultant and negotiator. He was a frequent guest on political talk shows in Atlantic City, N.J., discussing the benefits of the lower cost of government. He can be visited at conservative-politics-infofind.com
Ireland per capita income www.state.gov/r/pa/ei/bgn/3180.htm
Debt Charts www.gao.gov/cghome/d061138cg.pdf
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