Whiting column: Cut government workers, grow economy
Whether it be the military, research, infrastructure (roads, bridges), education or human services, the government seems to have an insatiable need for more.
We have previously discussed how taxes negatively affect the economy.
What about identifying strategies that would increase government’s real (effective) income without raising taxes? Both it and we would benefit. This would involve:
1. Increasing direct tax revenue and 2. decreasing expenses.
The easiest way to increase tax revenue is to boost economic activity through strategies promoting the movement of money in both quantity of transactions and dollars. The resultant increased business income, employment and wages can be taxed at current rates, increasing tax revenue. We have previously discussed numerous ways to promote economic activity.
Decreasing governmental expenses will be met with opposition, but there are numerous strategies.
• Reducing federal employees.
In 2016, 2.8 million employees, generating a payroll of $315 billion, identifies a logical place to start. According to the Bureau of Labor Statistics, there were 1.98 million federal employees in 2000, an increase of 820,000 in 16 years — 41 percent. With population increasing 14 percent in the same period, an increase of 14 percent might be justified, but not 41.
With computers and increased technology, personnel should be more efficient. The reason to spend money on technology is to increase employee efficiency and decrease cost. Every employee eliminated saves an average of $112,500. If technology improves efficiency 10 percent, for example, only 2.5 million employees are needed; a savings of nearly $33 billion.
State and city employees totaled 7.4 million, providing the potential for savings by another 250 percent.
• Privatizing governmental positions.
Beyond efficiency, the government can reduce employees by privatizing many services. Historically, government provided services that couldn’t be done by someone else: armed services, mail, law enforcement, for example.
Today, most governmental bureaucracies have hired beyond this scope. Beyond direct function, they hire lawn care, custodial, snowplowing, road repair, transportation, painting, maintenance, bookkeeping just to name a few that can and should be done by private business.
Why does it matter? Within the government, these positions don’t generate any profit, taxable income or new capital. There is little incentive to work efficiently because no one has a profit incentive or money at risk.
Private competition would keep prices down and quality up. The private business would pay property, sales and income taxes, increasing tax revenue.
The government would not only save wages, but accompanying costs: pensions, health insurance, workers compensation. We wouldn’t be spending money on or maintaining depreciating capital equipment such as vehicles, buses, snowplows, lawn mowers. We would spend less on consumables such as gasoline, office and cleaning supplies, auto parts. Fewer employees would facilitate reducing the size of buildings, liability exposure and insurance costs. The savings compound when one attaches the time value of money spent on depreciable assets and buildings.
It should be remembered that any time government buys land or building, the property tax revenue is eliminated that would incur if owned by the private sector.
It’s not a healthy economic situation when the newest buildings and vehicles are those of governmental agencies. Individuals and businesses are paying for something through their taxes that they can’t afford themselves.
• Reducing governmental employee compensation. The Office of Management and Budget compared compensation of federal and private sector employees between 2011-2015. For those with a bachelor’s degree, federal employees averaged 5 percent more pay than those employed by private business. Those with a high school diploma averaged 34 percent more. When benefits are included, the divergence increased. Federal employees with a bachelor’s degree averaged 52 percent more and those with a high school education 93 percent more.
It’s not a healthy economic situation when governmental compensation is so divergent from the norm. The private sector employees’ spendable income is decreased by the requisite taxes and they are being paid less. Federal employees are eligible for two annual raises: one based on inflation and one on seniority. Neither has anything to do with productivity.
To be fair, it can be argued that the ex-government employees would be unemployed. True in the short term, but employment would expand because private business would need more employees. In the private sector, they would be generating profit, capital and increased taxable income. This would be multiplied by the increased economic activity resulting from lowered tax rates increasing the movement of money.
• Requiring other governments to pay their fair share.
We pay a disproportionate share of the expenses associated with multinational agreements. The United Nations annual budget is $8 billion. We pay 28 percent. China pays only 10 percent; Russia 4 percent and everyone else a smaller figure. Determining a country’s share by a combination of GDP, geographic size, population would seem more equitable.
We pay 22 percent of the $2.3 billion North Atlantic Treaty Organization budget when other member nations are the main beneficiaries of our assuring their national security. Germany pays 14.7 percent, England and France pay about 10 percent each, Canada 1 percent.
The Paris Climate Accords required an initial cost of $3 billion. Japan’s obligation was $1.5 billion. China, India and Mexico, the first, third and fourth largest producers of emissions per capita, were to pay nothing and were allowed to continue to build coal-fired power plants until 2030. We’re not debating the validity of the goal of the Paris accords, just the disproportionate cost to the United States.
The caveat is that as a result of reducing employees, their compensation, and other savings, the government must actually lower tax rates and not just spend the savings in some other manner. It is our personal responsibility to push the politicians to reduce expenses and lower tax rates as a result.
Bryan Whiting believes most of our issues are best solved by personal responsibility and an understanding of non-partisan economics rather than by government intervention. He is retired after 40 years of teaching marketing, entrepreneurship and economics. Comments and column suggestions to: email@example.com.
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