Hiding the Cost of Government Leads to Bigger Government

The US Congress hides from voters a huge part of the cost of government: the hidden costs of taxes, which include lost income and jobs. Failing to account for these costs creates a bias in favour of bigger government and a less efficient tax code, says Christopher J. Conover, a research scholar with the Center for Health Policy and Inequalities Research at Duke University.

Everyone from President Reagan's economic advisor Martin Feldstein to President Obama's economic advisor Jonathan Gruber agree that this hidden cost of taxation is very real and very large.

When the federal government takes an additional dollar from taxpayers, the actual cost to society is generally $1.44.

That extra $0.44 represents the deadweight loss of taxation.

Every time Congress shifts another dollar from Peter to Paul, it leaves society $0.44 poorer.

Yet Congress never tells voters about these hidden costs before raising our taxes. It doesn't even measure them, says Conover.

In a new study, Conover uses the recently passed health care legislation as a striking example of hidden costs.

ObamaCare includes roughly $500 billion in new taxes over the next 10 years, but also includes provisions that could result in further tax increases (such as the so-called "doc fix").

If all those additional taxes materialise (which some argue is the most likely scenario), then ObamaCare will impose an additional cost of roughly $550 billion in foregone economic output.

If Congress ends up borrowing money to finance ObamaCare's new spending or the "doc fix," the deadweight losses could climb higher still.

University of Chicago economist Harald Uhlig estimates that federal borrowing carries a much higher deadweight loss, such that every $1 of deficit spending ultimately costs society $4.40.

Politicians are defrauding the American people by not accounting for this hidden cost of government, says Conover.

Source: Christopher J. Conover, Hiding the Cost of Government Leads to Bigger Government, Daily Caller, October 13, 2010.

For text: http://dailycaller.com/2010/10/13/hiding-the-cost-of-government-leads-to-bigger-government/

For study: http://www.cato.org/pub_display.php?pub_id=12197

For more on Taxes: http://www.ncpa.org/sub/dpd/index.php?Article_Category=20

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 19 October 2010