Henry David Thoreau in his essay Civil Disobedience wrote, “That Government is best which governs least.” Those particular words, written in 1849, summarize the simple truth that the power of the individual and self-reliance in our free society are what has driven the development of American Exceptionalism.  Unfortunately in the 162 years since, our great nation has fallen prey to the dependency of entitlement programs administered by a suddenly powerful central government.  The cost of all this government in our lives, programs that now approximately 50% of our population has become dependent on, has reached unsustainable levels and our liberty is in peril.

The major entitlements of Social Security and Medicare, which all workers pay for through payroll taxes, are only part of the problem.  The future liabilities of these programs can be managed by restructuring the timing of benefits and the manner in which collected taxes are invested.  Future installments in this series will offer some thinking on these matters.  The other part of the problem is the combination of additional entitlement programs and the cost of the large federal bureaucracies to administer these other programs.

In 2011, we will pay out $385 billion in food stamps, $365 billion for the federal portion of Medicaid (with an almost equal amount due from the states), $200 billion in unemployment benefits and over $100 billion in aid to education.  The total cost of these payments will exceed $1 trillion, but the cost of administering these programs will add approximately $300 billion in expenditures to the federal budget.  The Department of Agriculture, the Department of Labor, the Department of Education, the Department of Health and Human Services and the Department of Housing and Urban Development are largely in place to administer the distribution of government aid.  Excluding defense, these departments and their associated costs represent half of our entire non-military federal government.

Without questioning the necessity of the programs, it is reasonable to question why we need all the extra government to administer them.  One solution is to consider localization of the management of these entitlements by transferring that authority to the states.  Private sector experience has proven that more local operations and management results in lower costs and greater efficiency. Decisions made closer to the source of the need are made faster and by fewer employees. Recognizing that there will be a cost to localized administration, the net impact of eliminating these cabinet level departments and their hundreds of thousands of personal and the associated supportive infrastructure will be a significant reduction in overall costs.

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From the Associated Press:

One of the first places to test the new pro-business push will be Wisconsin, where Republican Gov.-elect Scott Walker has promised to call the new GOP-led Legislature into an emergency session on his first day in office Jan. 3.

Walker wants to lower taxes on businesses with fewer than 50 employees, impose new business-friendly limits on liability lawsuits and transform the state Commerce Department into a public-private partnership to lure companies to the state.

“I think it’s basically put-up-or-shut-up time,” Walker said after his November election. “We have a mandate from the voters of the state, and it’s one we don’t take lightly.”

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There are plenty of reason to like and dislike the tax deal between President Obama and congressional leaders. On the plus side, we dodge a big tax increase for the next two years. We also replace a goofy and ineffective “make work pay” tax credit with a supply-side oriented reduction in the payroll tax rate (albeit only for one year, so there probably won’t be much economic benefit).

On the negative side, the deal extends unemployment benefits, which has the perverse effect of subsidizing unemployment. The deal is also filled with all sorts of corrupt provisions for various interest groups such as ethanol producers.

Then there are provisions such as the 35 percent death tax. Is this bad news, because it is an increase from zero percent this year? Or is it good news because it is much lower than the 55 percent rate that was scheduled to take effect beginning next year? That’s hard to answer, though I know the right rate is zero.

But here’s one bit of good news that has not received much attention. The tax deal ends the “Build America Bonds” tax preference, which was one of the most destructive provisions of Obama’s so-called stimulus. Here’s an excerpt from a Bloomberg report.

Senate Democrats backing the subsidy, which has helped finance bridges, roads and other public works, fell short in a bid to get the program added to a bill extending the 2001 and 2003 income-tax cuts. That failure was the latest in efforts to keep the Build America program alive beyond its scheduled end on Dec. 31. …While Obama and Democrats have supported prolonging the program, they have run into opposition from Republicans critical of the stimulus package. Extensions have twice passed the Democratic-controlled House only to stall in the Senate, where the Republican minority has sufficient power to block legislation. The U.S. government pays 35 of the interest costs on Build America bonds. …State and local governments, the U.S. Chamber of Commerce and representatives of the construction industry are among the program’s advocates.

Build America Bonds are a back-door handout for profligate state and local governments, allowing them to borrow more money while shifting some of the resulting interest costs to the federal government.

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…if you match up what James’ salary would be for the first five years in Cleveland and the five years in Miami, you find that the Cavaliers are only offering him $4 million more. That advantage gets erased — and actually gives the Heat the monetary edge over — when you consider the income tax difference. …Playing in Cleveland, LeBron would face a state income tax of 5.925 percent, plus a Cleveland city tax of two percent. Over the first five years of a new contract with Cleveland, James would give back $3,953,060 combined to the state and city for the 41 games each season he’d play at home. But James would have to pay none of that for home games in Miami since Florida doesn’t have an income tax. Athletes have to pay income taxes to states that they play in on the road, so the games he’ll play away from home — whether he played for Cleveland or Miami — are essentially a wash. But there are, on average, 11 away games per season where James would have to pay Ohio and Cleveland taxes. Why? Because he has to pay when he plays in the six areas – Florida, Texas, Washington D.C., Illinois, Toronto and Tennessee – that have no jock taxes. That’s another $1,061,128 he’ll have to pay in taxes that he wouldn’t have to pay in Miami.

The Center for Immigration Studies recently put out a study arguing that immigration has had negative effects on California. One of their measures was a comparison of how many people in the state were receiving some form of welfare compared to other states. I found that data (see Table 3 of the report) very interesting, but not because of the immigration debate (I’ll leave others to debate that topic). Instead, I wanted to get a better understanding of the variations in government dependency. Is there a greater willingness to sign up for income redistribution programs, all other things being equal, from one state to another? The “all other things being equal” caveat is very important, of course, since the comparison produced by CIS may simply be an indirect measure of the factors that determine welfare eligibility. One obvious (albeit crude) way of addressing this problem is to subtract each state’s poverty rate to get a measure of how many non-poor people are signed up for income-redistribution programs. Let’s call this the Moocher Index.

A few quick observations. Why is Vermont (by far) the state with the largest proportion of non-poor people signed up for welfare programs? I have no idea, but maybe this explains why they elect people like Bernie Sanders. But it’s not just Vermont. Four of the top five states on the Moocher Index are from the Northeast, as are six of the top nine. Mississippi also scores poorly, coming in second, but many other southern states do well. Indeed, if we reversed the ranking and did a Self-Reliance Index, Virginia, Florida, and Georgia would score in the top 10. Nevada, arguably the nation’s most libertarian state, is the state with the lowest number of non-poor people signed up for welfare.

Let’s now emphasize several caveats.

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The political process often resembles an unseemly racket as politicians take money from people who earn it and give it to another group in exchange for campaign cash and political support. The modern bureaucracy is a good example. Government workers have now become a cosseted elite, with generous pay, extravagent benefits, lavish pensions, and ironclad job security. In exchange for this privileged status, they reward the politicians with millions of dollars of support and a host of in-kind contributions.  I have documented many of these outrages in my “Taxpayers vs. Bureaucrats” series at the International Liberty blog. Well, now we have a video detailing how the government workforce has morphed into a fiscal nightmare for taxpayers.

There are three things in the video that deserve special emphasis. First, bureaucrats are vastly overpaid. The government data cited in the video show that total compensation for the federal civil service is twice as high, on average, as it is for workers in the productive sector of the economy. There are some bureaucrats who deserve above-average pay, such as scientists dealing with nuclear weapons, but it is outrageous that the average drone in the federal bureaucracy is getting twice as much compensation as the taxpayers (serfs) who pay their salaries.

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So let’s say you’re stuck in a house that the bank says is worth half a million, but the market says it’s worth only a quarter of that. What if it turned out you could walk away from it and rent not just another house, but a bigger house, for less money? What if four million of your friends figured this was a good idea, too? We’ll discuss this and more on today’s edition of Coffee and Markets, a daily podcast from The New Ledger on politics, policy and the marketplace with Francis Cianfrocca, brought to you by BigGovernment.com.

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