How many Americans work in government? Would you believe 40 million!

How many Americans work in government? That’s a more difficult question to answer than you would think. Officially, as of 2009, the federal government employed 2.8 million individuals out of a total U.S. workforce of 236 million, or just over one percent of the workforce.

But that isn’t the entire picture. Add in uniformed military personnel, and the figure goes up to just under 4.4 million. There are also 66,000 people who work in the legislative branch and for federal courts. That makes the total figure about 2 percent of the workforce.

Even that doesn’t tell the full story. A lot of government work is done by contractors — from arms manufacturers to local charities, from environmental advocacy groups to university researchers. Much of the work these companies and individuals perform is funded by taxpayers. They should count as part of the federal government workforce as well.

Unfortunately, we can’t ask the Office of Personnel Management (OPM) how many government contractors and grantees there are. They don’t keep such records.

However, Professor Paul Light, of New York University, has estimated the size of these shadowy branches of government. As he points out, while there are many good reasons for the government to use contractors. But, the use of contracts and grants also hides the true size of government:

[The federal government] uses contracts, grants, and mandates to state and local governments to hide its true size, thereby creating the illusion that it is smaller than it actually is, and give its departments and agencies much greater flexibility in hiring labor, thereby creating the illusion that the civil-service system is somehow working effectively.

OPM’s failure to keep records of the number of quasi-governmental employees indicates a lack of accountability, as Professor Light says:

Contractors and grantees do not keep count of their employees, in part because doing so would allow the federal government . . . to estimate actual labor costs.

Nevertheless, Professor Light was able to come up with some useful estimates by using the federal government’s procurement database. When he added up all the numbers, he found that the true size of the federal government was about 11 million: 1.8 million civil servants, 870,000 postal workers, 1.4 million military personnel, 4.4 million contractors, and 2.5 million grantees.

Yet the federal government isn’t all. Despite its huge budgets, state and local governments dwarf Washington in direct employment. According to the U.S. Census Bureau, there are 3.8 million full-time and 1.5 million part-time employees on state payrolls. Local governments add a further 11 million full-time and 3.2 million part-time personnel. This means that state and local governments combined employ 19.5 million Americans.

When we add up the true size of the federal workforce — civil servants, postal workers, military personnel, contractors, grantees, and bailed-out businesses — and add in state- and local-government employees — civil servants, teachers, firefighters, and police officers — we reach the astonishing figure of nearly 40 million Americans employed in some way by government. That means that about 17 percent of the American labor pool — one in every six workers — owes its living to the taxpayer.

What does this mean for the future of our nation?

There is going to be a government default at some point. Tens of millions of these people will lose their jobs. The private sector will have to absorb them.

Consider the Great Depression, when government was a small percentage of the labor market. There was 25 percent unemployment in 1933.

Think of what will happen in the Great Default. There will be a surge in unemployment, but then these people will at long last be forced to become productive. There will be an increase in national productivity. These people will suffer sharp declines in their income. But taxes will fall for the rest of us.

It will be the turning point for America’s decline. This nation will rebound. No nation is better positioned for economic growth as a result of bankrupt governments. But the pain will be excruciating for the people who are on government payrolls today. As for government pensions, forget about it. Gone. As for government labor unions: also gone.

This article originally appeared in the National Review.

Obama’s Dubious Math For Raising Taxes On Rich Americans

tax the rich doesn't work as claimed

Excess Taxation Leads To Empty Pockets For All

Raising taxes on the “rich” is generally considered a safe political  ploy. The tactic uses the tried and true class warfare principals taught in Liberal Politics 101 courses around the nation. True to his liberal roots President Barack Obama is calling for $1.5 trillion in new taxes that would predominantly hit high-income earners.

The mainstream media’s support for President Obama’s “math” as it concerns his long-anticipated push to raise taxes on rich Americans is laughable. From the Associated Press:

President Barack Obama makes it sound as if there are millionaires all over America paying taxes at lower rates than their secretaries.

“Middle-class families shouldn’t pay higher taxes than millionaires and billionaires,” Obama said. “That’s pretty straightforward. It’s hard to argue against that.”

The data tell a different story. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.

There may be individual millionaires who pay taxes at rates lower than middle-income workers. In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the Internal Revenue Service. That, however, was less than 1 percent of the nearly 237,000 returns with incomes above $1 million.

The Senate Democratic leadership confirms these numbers. From the FOX News website this morning:

According to Senate Democratic Leader Harry Reid’s office, 22,000 people who make over $1 million a year pay taxes at a rate of less than 15 percent. According to the IRS, nearly 1,500 households reporting more than $1 million in income paid no federal income taxes in 2009.

That’s out of about 236,000 returns for income above $1 million, most of which belong to households paying taxes at a higher rate. And, as would be expected, they contribute a disproportionate share of tax toward federal coffers.

IRS statistics for tax year 2009 show the millionaires — who make up a fraction of a percent of all taxpayers — contributed more than 20 percent of total federal income tax revenue. That’s about $180 billion in taxes from millionaires, according to number-crunching from the National Taxpayers Union.

The National Taxpayers Union also found that in 2008 the top 1 percent of American taxpayers paid 38 percent of collections for personal federal income tax while they represented 20 percent of all income.

The Associated Press noted that, on average, upper-bracket households pay a higher percentage of their income in federal taxes than lower-earning households. From their piece:

This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes and payroll taxes, according to the Tax Policy Center, a Washington think tank.

Households making between $50,000 and $75,000 will pay 15 percent of their income in federal taxes.

Lower-income households will pay less.

Supporters of the tax hike argue that something has to be done to counter-act rich Americans from controlling more of the nation’s wealth than they already have. Duke University behavioral economics professor Dan Ariely pointed out in an August 16 PBS News Hour segment:

People don’t understand how much wealth the top 20 percent have. They actually have 84 percent of the wealth. And they think they have much less. And more disturbingly, people don’t understand how little wealth the bottom of the distribution have. The bottom 40 percent of the U.S. have about 0.3 percent of the wealth, basically zero. And people think they have much more than that.

IRS data: U.S. incomes fell sharply in 2009

From Reuters - U.S. incomes plummeted again in 2009, with total income down 15.2 percent in real terms since 2007, new tax data showed on Wednesday.

The data showed an alarming drop in the number of taxpayers reporting any earnings from a job — down by nearly 4.2 million from 2007 — meaning every 33rd household that had work in 2007 had no work in 2009.

Incomes Plumet

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Average income in 2009 fell to $54,283, down $3,516, or 6.1 percent in real terms compared with 2008, the first Internal Revenue Service analysis of 2009 tax returns showed. Compared with 2007, average income was down $8,588 or 13.7 percent.

Average income in 2009 was at its lowest level since 1997 when it was $54,265 in 2009 dollars, just $18 less than in 2009. The data come from annual Statistics of Income tables that were updated Wednesday.

The average tax rate was 11.4 percent, up from 10.5 percent in 2007, the Internal Revenue Service data showed.

No income tax was paid by 1,470 of the 235,413 taxpayers earning $1 million or more in 2009, compared with the 959 taxpayers with million-dollar-plus incomes who paid no income taxes in 2007.

Total adjusted gross income reported on tax returns, measured in 2009 dollars, was $7.626 trillion, down from $8.233 trillion in 2008 and $8.989 trillion in 2007.

Total adjusted gross income was up only slightly from the $7.475 trillion reported in 2001, when there were 10 million fewer taxpayers. Adjusted gross income is the amount on the last line of the front page of a Form 1040 tax return.

The data from tax returns showed a startling drop in the total number of taxpayers reporting any wages. A taxpayer, as defined by the IRS, can be an individual or a married couple. The data showed almost 4.2 million fewer taxpayers reported wages in 2009 than in 2007, with about 116.7 million taxpayers reporting wages and salaries in 2009 — down from about 120.8 million in 2007.

Wages Fall!

Average wages fell, too, sliding $1,106 to $48,917 from $50,023 in 2007.

Fewer Tax Returns Filed

The number of tax returns filed fell to 140.5 million, down almost 2 million compared with 2007, as millions of Americans went from working to having no earned income or so little that they did not have to file a tax return.

The number of Americans reporting incomes of $10 million or more also plunged even more than the steep drop in income for the population as a whole.

Just 8,274 taxpayers reported income of $10 million or more in 2009, down 55 percent from 18,394 in 2007. Compared with 2007, total real income of these top earners in 2009 fell 58.6 percent to $240.1 billion, but average income slipped just 8.1 percent to $29 million.

While the number of people who earned enough income to file a tax return fell, the share of those filing who paid no income tax rose to 41.7 percent of tax returns in 2009, up from 36.4 percent in 2008.

The average income of those filing but paying no tax was $14,483.

The share of households filing a tax return but paying no income tax results from two key factors:

  • One is the drop in incomes because a married couple does not pay income tax until they make at least $18,300, and families with two children pay no income tax until they make more than $40,000 under policies started in 1997 and since expanded at the behest of Congressional Republicans, many of whom complain that too many households do not pay income taxes.
  • The second reason was that in 2009, nearly all working taxpayers received the temporary Making Work Pay Tax Credit sponsored by President Obama, which saved as much as $400 ($800 for married couples) in federal income taxes in 2009. The credit continued in 2010, but then ended.

The Gang of Six Had the Right Idea About Tax Rates

The Gang of Six’s deficit reduction plan is DOA in Washington. But, at least one provision of their plan deserves resurrection – flattening the tax code.

Part of the proposal offered by the bipartisan group of senators would have reduced the number of tax brackets to no more than three and cut the top tax rate to between 23 and 29 percent. In exchange for the lower rates most deductions and credits would be eliminated.

Empty PocketsThe proposal would represent an important step toward a flat tax. In addition, because of the lower rates it would provide an immediate economic stimulus.

Such a proposal would require that cherished deductions and credits be taken away from many who have come to rely on them. But, if income tax rates are slashed, deductions become less significant. A flat tax with few deductions, would bring fairness and predictability to the tax code. If would also return the income tax to its original  purpose of funding the federal government and get it away from being used as a means of manipulating behavior.

Parceling out deductions is a way for the government to get taxpayers to do the things it wants them to do. For example, when politicians decided that high rates of home ownership were desirable, they made mortgage interest and property taxes deductible.

But in today’s housing environment many  people, in all income ranges, are find renting makes more sense. Why should they pay higher taxes to subsidize someone else’s mortgage?

Mortgage deductions also encourage debt accumulation and entice homeowners to take on more debt then they can afford.

A tax code with high rates and lots of deductions creates winners and losers as well. For example, many couples today are opting not have children. Yet they still pay higher taxes (in the form of property taxes) to support schools, in effect subsidizing their neighbors who have children.

Recently, tax credits have been used to urge consumers to buy “green” products – hybrid or electric cars or new energy efficient windows for example. It is fairer to lower tax rates, let everyone keep more of their earnings and allow each of us to decide how to best spend our money.

Those who believe the rich don’t pay their “fair share” of taxes, whatever that share may be, should love a simplified, flat tax simply because the wealthy are best able to exploit a complex tax code. They have the money and resources to hire the best tax strategists to ensure they take advantage of the complexities of the tax code.

A simple and fair tax code will help to re-establish the idea that if the government has value, they everyone should pay for.

Many feel recent tax cuts enacted under George W. Bush and extended in the Obama Administration benefit wealthy Americans disproportionately. They have also created a tax environment where nearly half of all wage earners pay no income tax at all.

On the surface that may seem like a good thing, but consider that the current tax code has created a large constituency for a big, wasteful  government . Why worry about government spending when you’re not paying any of the bills – at least not today.

But the most important reason for a balanced, fair tax code is to keep government for using its taxing power to influence our personal decisions.

Worried About Currency Controls? You Should be More Concerned About Travel Controls.

The federal government’s information systems and, in particular, their ability to share information inter-agency has been considered less than state-of-the-art. However, decades of steady expansion of inter-agency data sharing is set to add another layer of surveillance over the American public. The General Accounting Office (GAO) issued a report in mid April that recommends consideration of a program whereby citizens who are delinquent in filing or paying their taxes could be denied a passport.

Here is the recommendation in the GAO’s own words:

If Congress is interested in pursuing a policy of linking federal tax debt collection to passport issuance, it may consider taking steps to enable [the] State [Dept.] to screen and prevent individuals who owe federal taxes from receiving passports.

US PassportThe report was not the product of some make-work assignment intended to keep a bureau of pocket-protector-clad wonks busy. The investigation was conducted by the Forensic Audits and Investigative Service division of the GAO at the behest of certain unnamed members of congress.

It is likely that a bill will make its way through Congress and be on its way to becoming law soon. The dire financial straits of the U.S. pretty much assure this will happen.

Steps to enable a variety of state and federal agencies to talk to one another and exchange data has been underway for decades and is not something new. In the ’80s, the U.S. states linked their motor vehicle licensing departments. This ended the practice of scofflaw drivers skipping out on a trail of parking tickets and moving violations in state A by simply applying for a license in state B.

The GAO report is far more ominous.

The report is based on data from 2008. That year, 16 million passports were issued, and over 224,000 of these individuals collectively owed the IRS $5.8 billion. The report focuses on the 25 most egregious cases from which it draws its conclusions.

All 25 of the cases cited involve persons owing millions of dollars in back taxes, years of failure to file a tax return, and, in some cases, felony convictions for fraud and ongoing investigations concerning money laundering. Not exactly the profile that comes to mind of a typical Citizen Joe behind on his taxes.

And therein lies the danger. Like all government programs, once implemented, they tend to expand as the mission is redefined. And nothing redefines a mission more than one that generates fast revenue. It is not stretching the imagination too far to envision a program that initially denies passports to morph into a compliance regime that detains and restricts travelers for any tax infraction.

If you are part of the millions of U.S. taxpayers that must make quarterly estimated tax payments, you could find yourself detained when traveling internationally if the IRS decides that you are “behind” on taxes owed or if you are a little late on making your latest payment. Far-fetched? Think again.

When the state criminalizes the daily activities of life or minor transgressions of the law, you live in a police state.

Many advisers preach the importance of diversifying wealth beyond the reach of a single sovereign government. But having resources abroad is pointless if you can’t leave your country. It has never been more important to follow the law to the letter, particularly the laws regarding banking and taxes. For many, this is no longer a do it yourself project. Find the right people that can keep you within the law and maintain your freedom of movement.