All Commentary
Tuesday, April 1, 1997

There’s More to Government Than You Think

We Pay for Government in Numerous Hidden Ways


“Thank God we don’t get all the government we pay for.”

I can’t verify who first said that, but no doubt millions of Americans would agree with it. Millions more would endorse it if they understood that government is actually costing them far more than they ever imagined. This seems like a timely subject for April, the month when taxpayers render unto Caesar what Caesar’s tax tables tell them they owe.

Make no mistake about it. Cost has a lot to do with our personal choices. Indeed, as every economics instructor points out to his freshman students, people demand more of a good when its cost declines—all other factors remaining equal. They demand less of it as its cost rises. The more costly a good becomes, the more it prompts individuals to ask these questions: Do I really need this? Might I be better off doing with less and spending my money on something else? What might be the alternative to this particular good?

As taxes rise, more and more people begin asking these questions about government, too. The problem is, many taxes are not readily apparent to those who pay them, and even all taxes—both the obvious and the hidden—do not make up the total price we pay to be governed.

We pay for government not only when we fill out our 1040 forms, but also every time we trade for anything in the marketplace. Its various impositions on producers are baked into the prices of the goods they sell, the return they are able to provide to investors, and the wages they can afford to pay their employees. Federal regulations alone are estimated to cost Americans more than $600 billion yearly.

We pay for government in lives shortened or lost because of delays in new drug approvals. Because of a raft of restrictive barriers to enterprise, we pay for government in terms of businesses stymied or never started and jobs never created. A government education monopoly that often fails to educate exacts a terrible price by stunting careers and squandering immense human potential. One cost of government that can’t be reckoned in dollars and cents—a diminution of the individual’s basic freedom to act and speak on his own—has been deemed important enough to spark a revolution from time to time.

No one would suggest that government is all cost and no benefit. When it protects property and keeps the peace, it performs a positive good. Diehard statists see almost nothing but the supposed benefits, from keeping peanut farmers in business to putting a man on the moon. Unfortunately, the public debate about government almost always overstates the benefits (because they are visible and concentrated) and understates the costs (because they are hidden and diffused). In the interest of full disclosure and a better informed citizenry, the cost side of government could use a little illumination.

What if every filling station posted its price alongside a breakdown of all the taxes that are paid from the oil well to the gas pump? Consumers would see that of the $1.25 they just paid for a gallon of gasoline, at least 70 cents goes to government (essentially, to people who wouldn’t know how to drill a well if their very lives depended on it). It might put a new light on the phrase windfall profits.

Haven’t we all heard every increase in Social Security benefits defended with the retort, But I paid in!? That sentiment is expressed even by those who received back, with interest, their entire lifetime tax contributions to Social Security in their first three years of retirement. Now a decade later, they are collecting benefits paid for by other workers and still they cry, But I paid in! If every Social Security check stub had two simple numbers on it—how much the individual paid in and how much he had received to date—a few recipients might stake their claim on other citizens with a little less enthusiasm.

Imagine how public debate might change if employers told their workers about the costs of government that come right out of their paychecks? Not just the obvious costs that show up on their pay stubs now, like federal, state, and local income taxes and the employee’s share of Social Security and Medicare, but some of the not-so-obvious ones as well. Enhance the pay stub to inform the worker—that’s it in a nutshell.

To encourage employers to do just that, the Mackinac Center for Public Policy has come up with what we call the Right to Know Payroll Form. The form extends most current payroll accounting beyond the standard withholdings or deductions to include the employer’s share of certain taxes, the expense of having a paid staff to compute and administer payroll taxes for the government, and the cost of other employment-related mandates.

The Right to Know Payroll Form starts with a calculation of Estimated Payroll Allocation—the sum of those taxes and other costs imposed specifically on the employment relationship. Included are the company’s expenses for mandated programs from the Americans With Disabilities Act to the Family and Medical Leave Act to affirmative action, which are estimated and spread across the existing workforce, prorated for each pay period. The effect is to show each employee that his company pays out quite a bit before he even gets to the Gross Pay figure on the traditional pay stub.

To illustrate, here’s information from an actual pay stub of a real, live worker at a company that has adopted our form. (The name has been deleted to protect the victim.)


1. ESTIMATED PAYROLL ALLOCATION: $3,012.04

 

2. Government Cost: Tax Administration $6.90

3. Government Cost: Mandated Benefits $4.14

4. Government Tax: Workers’ Compensation $19.32

5. Government Tax: Unemployment Insurance $24.84

6. Government Tax: Employer’s Share of Social Security $159.21

7. Government Tax: Employer’s Share of Medicare $37.23

8. GROSS PAY: $2,760.39

9. Government Tax: Federal Income Tax $288.32

10. Government Tax: State Income Tax $95.79

11. Government Tax: City Income Tax $27.60

12. Government Tax: Employee’s Share of Social Security $159.21

13. Government Tax: Employee’s Share of Medicare $37.23

14. NET PAY: $2,152.24

This employee is now much better informed. Before his employer adopted the Right to Know Payroll Form, when asked how much he pays for government, he used to simply add up #9 through #13 and arrive at a response of $608.15. Now when he’s asked that same question, knowing that every payroll expense comes out of whatever pool of revenue the business has to pay its workers with, he includes the sum of #2 through #7 and responds this way: $859.79, and I’m not sure I’m getting my money’s worth.

Note the recommended usage of the terms Government Tax and Government Cost. We don’t want anybody to think these things are either voluntary or from the tooth fairy.

The Right to Know Payroll Form is adaptable to any workplace. Some businesses may want to include additional line items not mentioned here. The State of Michigan implemented its own variation of the form in 1996 for all 61,000 state employees and included additional information about health and pension benefits negotiated by the public- employee unions.

In any event, providing information like this helps workers understand the constraints employers face when seeking to create jobs, increase pay, and compete effectively in a global economy. It shatters the myth that taxes and mandates can be placed on employers without affecting the workers themselves. It encourages awareness of employment-related public policy and how it affects jobs and wages. And it may even help the cause of liberty to the extent it encourages each worker to ask, Do I really want or need this much government?

So as you fill out the forms for your friends at the Internal Revenue Service, remember that as high as the government’s bill may be, there’s a part of it you already paid.


  • Lawrence W. Reed is FEE's President Emeritus, having previously served for nearly 11 years as FEE’s president (2008-2019). He is also FEE's Humphreys Family Senior Fellow and Ron Manners Global Ambassador for Liberty. His Facebook page is here and his personal website is lawrencewreed.com.