Lest we be caught up in euphoria about all that federal tax revenue creating a budget surplus, or about the surplus tax revenue that most of the states are gathering, it might be well to remember this:
As governments at all levels take a greater percentage of our money in taxes than ever before and use it to become more intrusive in our lives than ever before, they are redistributing an amazing amount of wealth – to people who are better off than those from whom the money is taken. The fortunate recipients are government employees.
Since 1980, the average federal nonmilitary employee has received $5 in additional wages and benefits (adjusted for inflation) for every $1 the average private-sector worker received. The average state and local government employee has received $3 to every $1.
By 1994 federal employees' annual wages and benefits were an average 70 percent higher than employees in the private sector – $60,478 to $35,523. The discrepancy was not as egregious for state and local government employees – only 10 percent higher with an average of $39,128.
Here we are not comparing the wages of skilled technicians and floor sweepers. In comparable jobs, federal employees average earning 50 percent more than private-sector employees, state government employees average earning 39 percent more and local government employees average earning 31 percent more.
This is not a phenomenon in which a few states skew the figures. The American Legislative Exchange Council has found that only Georgia and Missouri pay state employees less on the average than the private sector – and the difference vanishes there when pay is measured in compensation per hour worked. In other words, state employees in Georgia and Missouri got paid more per hour, they just didn't work as much.
With this level of compensation, it is perhaps not surprising that government is, as Stephen Moore of the Cato Institute has called it, "America's No. 1 Growth Industry." Since 1992, more people have worked for the government than for all the nation's manufacturing companies. In 1994, the federal, state and local governments employed 19.1 million (not including the military) versus 18.3 million employed in manufacturing.
A rough calculation indicates that, with that many employees, governments pay them about $1 trillion a year just in pay and benefits. That's about 43 percent of all the money that governments at all levels spend.
Economist Richard Vedder has calculated that if state and local governments – never mind the federal government – had limited increases in their spending in the 1980s to the same rate that nongovernment spending increased, the average family of four would have earned $5,600 a year more by 1990 than it did. That's because the money absorbed by state and local governments slowed economic growth that otherwise would have occurred. Imagine how much more that family would have earned if the federal government had done the same thing!
This is not to knock government employees. One can't blame them for going where the money is. But whether they recognize it or not, the compensation of government employees has a lot to do with the fact that millions of American families – both husband and wife – are working to pay the taxes to pay high wages to government employees.
A researcher at the National Center for Policy Analysis looked at a family of four earning just $24,960 in 1993 – the husband $14,560 and the wife $10,400. At that time, that was just enough to disqualify them for the Earned Income Tax Credit. He calculated that they were paying almost a quarter of their earnings, $6,039, in direct taxes, leaving them disposable income of $18,921. And that doesn't take into account the additional incidental costs connected with holding a second job.
Looking back a generation – to this family's parents in 1953 – we see just one of them working. The father earned $2,800 a year, about the same as $24,960 in 1993, but after taxes he had the 1993 equivalent of $22,700.
Thus the one-earner family of four in 1953 was better off than the two-earner family of four in 1993, and for one reason: taxes. In 1993 one spouse had to hold an outside job just to support government spending. The government didn't demand that of the family in 1953.
If policymakers want to do something that's family-friendly, they might consider reducing the size of government, cutting spending and lowering taxes enough so that a mother can afford to stay home with the children if she chooses to do so, rather than taking a job to pay the taxes to support the government employees and operations.