cost of government 2012

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2/482 C OS T O F G OV ER NM EN T D AY 2012 REpORT

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TABLE OF CONTENTS


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A > * A >This report was authored by 2012 Thomas Jefferson Fellow Devin Bowen.

Devin holds a B.S.B.A. in Economics from Duquesne University. Currently, she is a second year Mercatus M.A. Fellow inthe Department of Economics at George Mason University. Her primary research interests include, tax policy, financialregulations, and international policies.

As of 2012, Devin has co-authored a Commonwealth Foundation policy analysis and two Mercatus working papers. Additionally, she has presented solo-authored and co-authored papers. The first was a policy analysis of urban congestion inLondon, presented at the Eastern Economic Association in 2010, in New York City. The second co-authored piece is a pieceon regulation and entrepreneurial activity, which was presented at the 2012 Association for Private Enterprise Conference inLas Vegas, Nevada.

In 2010, Devin was a Commonwealth Foundation Research Fellow. As a fellow she had the opportunity to participate inpolicy analysis and begin her experience in research and publication.

Devin was awarded the Thomas Jefferson Fellowship in March 2012.

* * >< >= F ;;> ?The Cost of Government Day Report is published in the context of the Thomas Jefferson Fellowship, a program run by theCost of Government Center (COGC). COGC offers this fellowship to a graduate or highly qualified undergraduate student

with a background in the field of economics interested in the areas of federal and state fiscal and regulatory policy.

The fellowship is named after one of the most influential thinkers in American history, and one of the leading proponentsof accountable government Thomas Jefferson, Founding Father and third president of the United States of America.

Acknowledging that the American people and their economy can thrive and prosper when the role of government is limited

and subject to the scrutiny of taxpayers, the Cost of Government Center seeks to shed light on government expenditures,and to promote the Jeffersonian ideals of fiscal accountability, fiscal restraint and free market principles.

The aim of the fellowship is to offer a student the opportunity to work independently in the area of federal and state fiscaland regulatory policy and in collaboration with prominent experts and institutions in the field. The primary task during thefellows time is to craft COGCs hallmark study, the Cost of Government Day Report.

C OST O F G OV ER NM EN T DAY 2012 REpORT


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* his year, Cost of Government Day (COGD), the day of the calendar year on which the average American hasearned enough income to pay for the burdens imposed by government spending and regulation at the federal,state and local levels, falls on July 15.This marks the second consecutive year in which COGD has fallen slightly earlier than the previous year. It is truethat 2012 was not without victories for taxpayersthe 2010 elections ushered new advocates of limited governmentinto Congress and statehouses across the country who quickly championed budget and spending reforms. However,the threat of bigger government is far from ameliorated; this years earlier COGD may be the last if policymakersdont take seriously the lessons of the past year.

The 2012 Fiscal Year was remarkable in several ways. First, a protracted battle over spending levels resulted in thefirst net spending cut from previous year appropriations for the first time this decade. After three years of explosivediscretionary spending baselines, this signaled a major shift in Washingtons spending-as-usual.

The agreement on spending levels was followed closely by an extraordinary debate on the countrys statutory debtlimit. Rather than extend borrowing authority carte blanche, as was customary, the impending ceiling catalyzed a targeted debate on government spending. This resulted in a final deal that promised over $2 trillion in savings fortaxpayers.

Importantly, the debt limit debate did not result in tax hikes to fan the flame of bigger government. Instead, nationalattention was directed wholly to the cause of the fiscal hysteria: government spending.

These victories, however, may be fleeting. A portion of the debt limit deals spending cuts$1.2 trillionare slatedto take effect at the beginning of next yeara pill many politicians are now finding too bitter to swallow.

Whats more, the 2001 and 2003 tax relief is slated to expire at the same time a slew of new taxes imposed by President Obamas health care law will come into effect. If Congress does not act, taxpayers will be hit with a $500billion tax hike in 2013 alone. The gravity of these tax hikes has caused some to muse that the victories of the pastyear should be erased in hopes of a compromise.

A so-called deal that presents tax hikes as part of any solution will erase the ground gained for taxpayers after a yearof successful efforts to cut spending. It is instructive that the principled stand against big government has resulted inslightly earlier Cost of Government Days over the past two years. However, if the deluge of new taxes is notprevented and spending restraint is quickly thrown by the wayside, 2012 may be the last time taxpayers are granted

this reprieve.

Onward,

G % E $% '+I * A$DC%GC E EC+*I E DI EC*% A**IE D+&&"E

Mattie DupplerExecutive Director Cost of Government Center

Grover Norquist President Americans for Tax Reform Foundation

A MESSAGE FROM


6/48C OST O F G OV ER NM EN T DAY 2012 REpORT

OVERVIEW OF RESULTS

D = >=Cost of Government Day (COGD) is the date of the calendar year on which the average American worker has earned enoughincome to pay off his or her share of the spending and regulatory burden imposed by government at the federal, state and local

C> > G> =< = D H 2012The Cost of Government Day for 2012 is July 15. On average, workers must labor 197 days out of the year to pay for all the costs iby the government. From a different perspective, the cost of government makes up 54.0 percent of annual gross domestic product

C> > G> =< = D H * =Cost of Government Day falls three days earlier than last years revised date of July 18. In 2012, the average American will have to work an29 days to pay off his or her share of the cost of government compared to ten years ago in 2002, when COGD was June 16.In fact, between 1977 and 2008, COGD had never fallen later than June 26. 2012 marks the fourth consecutive year COGD has fallen in Judifference between 2008 and 2009from June 23 to July 17was a full 24 days. The increase was spurred by massive government intervthe form of the Emergency Economic Stabilization Act (EESA) that created the Troubled Asset Relief Program (TARP) and passage of the Recovery and Reinvestment Act of 2009 (ARRA).

While 2012 marks the second consecutive year of an earlier COGD, this trend will only be temporary absent lasting and institutionalized reform. The start of the 2012 fiscal year came and went once again without a federal budget in place and the threat of bankrupt entitlement scontinues to loom large. Whats more, the largest tax hike in the nations history is scheduled to take place at the end of 2012 unless Congto protect taxpayers. If this tax increase is allowed to hit, COGD could permanently be pushed back into August and beyond.

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7/48

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COST OF GOVERNMENT DAY COMPONENTS

F ; ? = =The average American worker will have to labor 88 days just to pay for federal spending, which consumes 24.04 percent of the nationaThis is a small improvement from last year, when individuals had to work 91 days, and the previous year, when taxpayers worked 93 d

= "> ; ? = =In 2012, the average American labored 40.04 days to fund state and local spending. This is roughly the same as the number of daysin 2011; but it is one day more than 2010.

; > H C>The average American must labor 69 days in 2012 just to cover the costs of government regulations. In 2010 and 2011, laborerswork 71 days to cover the same costs. 2012 regulations consume about 19 percent of gross domestic product. In 2001, regulations co14 percent of gross domestic product; the gap between 2002 and 2012 represents the largest increase of regulatory burdens yet.


8/48coSt of government day 2012 report

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MI

CO

KS

MT

OR

RI

NH

DE

ID

UT

NV

ND

PA

VT

CA

DC

VA

WI

MA

MN

IL

MD

WY

WA

NJ

NY

CT

TN

LA

MS

SC

SD

AK

AL

HI

MO

ME

OK

WV

IOKY

AZ

GA

AR

NE

NC

TX

FL

NM

OH

The calculation of Cost of Government Day for each state is based on the varying government burdens suffered in each state. Tcontributors are federal tax and spending burdens. These federal burdens vary because relatively higher burdens are borne by states withhigher incomes. State and local spending burdens vary as well.

As in previous years, the latest Cost of Government Day is in Connecticut, with the average worker toiling until August 9, 2012 (alentire month beyond the national average) to pay for the full costs of government. Second place is given to New York and New JeCOGD falling on August 5, 2012 for both states. Following closely behind is Washington on July 27 and Wyoming on July 26.

STATE BY STATE BREAKDOWN


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= = = = # > D H 2011 2012 > C%GD

Tennessee 2 1 180 6/28Louisiana 4 2 181 6/29Mississippi 1 2 181 6/29South Carolina 3 3 184 7/2South Dakota 4 4 185 7/3

Alaska 13 6 186 7/4 Alabama 8 7 187 7/5Hawaii 21 7 187 7/5Missouri 17 9 189 7/7Maine 17 10 190 7/8Oklahoma 8 10 190 7/8

West Virginia 4 10 190 7/8Iowa 21 13 191 7/9Kentucky 8 13 191 7/9

Arizona 8 15 192 7/10Georgia 13 15 192 7/10

Arkansas 13 17 193 7/11Nebraska 36 17 193 7/11North Carolina 21 17 193 7/11Texas 25 17 193 7/11Florida 34 21 195 7/13New Mexico 4 21 195 7/13Ohio 21 21 195 7/13National Average - - 197 7/15Indiana 19 24 197 7/15Michigan 25 24 197 7/15Colorado 27 26 198 7/16Kansas 30 26 198 7/16Montana 19 26 198 7/16Oregon 27 26 198 7/16Rhode Island 38 26 198 7/16New Hampshire 29 31 199 7/17Delaware 30 32 201 7/19Idaho 13 32 201 7/19Utah 30 32 201 7/19Nevada 8 35 202 7/20North Dakota 34 35 202 7/20Pennsylvania 40 35 202 7/20Vermont 30 38 203 7/21California 43 39 204 7/22District of Columbia - - 204 7/22Virginia 36 39 204 7/22

Wisconsin 43 41 205 7/23Massachusetts 40 42 207 7/25Minnesota 43 42 207 7/25Illinois 42 44 208 7/26Maryland 47 44 208 7/26

Wyoming 38 44 208 7/26 Washington 43 47 209 7/27New Jersey 49 48 218 8/5New York 48 48 218 8/5Connecticut 50 50 222 8/9


10/48C OST O F G OV ER NM EN T DAY 2012 REpORT

THE GOVERNMENT SPENDING BURDEN

F ; ? = =Federal spending continues to be the major contributor to the total cost of government and the main driving force behind the subsincrease in the size of government over the last decade.

The average American will have to work 88 days just to pay for federal spending, which consumes 24.04 percent of gross domestic proyear. We note that this is a slight improvement from 91 days in 2011 and 90 days in 2009. However, over the last ten years, federal sphas jumped over 17 days from its place in 2002. Federal spending, relative to the economy, has increased by 21.15 percent since 2002

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79.63

90.41

93.11

90.81

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95.00

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While there is a slight improvement in the number of days worked to pay for federal spending this year, the growth of government remlargest threat to American prosperity today.

Taking spending from 20.8 percent of GDP in 2008 to 25.2 percent in 2009, the Obama Administration has overseen one of the lexpansions of the state in history.

In 2010, Congress passed and the President signed the Patient Protection and Affordable Care Act (PPACA). This massive overhaucountrys health care system exploits the unfunded liabilities of the current entitlements while exacerbating the crisis of exploding hecosts. Ultimately, the health care bill could cost upwards of $2.3 trillion, paid for partially with hundreds of billions of new taxes on Am

At the time of this writing, the United States Supreme Court is considering the constitutionality of the Presidents health care law. If PPcompletely overturned, it would relieve Americans of its twenty new or higher taxes and unbridle the country with its trillions in expespending. However, the countrys fiscal future will still be greatly imperiled by trillions in coming tax hikes beginning at the end of unsustainable entitlement programs and unrestrained discretionary spending.


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In 2011, the government spent $3.753 trillion. Over the last decade, federal spending has gone from $2.112 trillion in 2002 to $3.760 tin 2012.1 This is an estimated increase of 78.03 percent over the course of ten years. This accelerated spending has led to the largest dehistory: $1.413 trillion in 2009, $1.294 trillion in 2010, $1.296 trillion in 2011, and an estimated $1.095 trillion in 2012. The deficits2009-2012 constitute the largest spending sprees, as a percentage of GDP, since World War II. By 2022 government spending is estimreach $5.520 trilliona 46.81 percent increase from today.2



18.2 18.219.1 19.7 19 .6 19 .9 20.1 19.7

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25.2 24.1 24.123.2

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5.0

10.0

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0.0

5.0

Spending

Deficit

2.41.3

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0.0

200020012002 200320042005 200620 0720082009 20102011201 2 201320142015 201620172018 201920202021 2022

Spending

Deficits

Source: Congressional Budget Office, The Budget and Economic Outlook: Fiscals Years 2011 to 2021

? ; F> : ? = = = F ; B DDue to unprecedented government spending over the last four years, the federal deficit has received a significant amount of atThe deficit, however, is only helpful insofar as it forces profligate policymakers to tackle the real problem of fiscal insolvency: out spending.

The size of government is determined not by the deficit, but by levels of spending and revenues. These are the major factors affececonomy, as they determine the incentives for saving, investment, entrepreneurship and employment.

However, national debt, at a certain threshold, is correlated with negative economic growth. A 2010 study by Reinhart and Rogofthat, median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; a(mean) growth rates are several percent lower.3 As long as President Obama oversees annual deficits exceeding $1 trillion, the rapid pa90 percent becomes increasingly evident.

The 2012 federal deficit is expected to more than double in size compared to 2008jumping from $459 billion to an estimated $trillion. This means that the deficit relative to GDP will balloon from 3.2 percent in 2008 to 7.0 percent at the end of 2012.4

Institutionalizing modest spending restraint could have avoided massive run-ups in debt and prevented the stark austerity measures sosuggested may be necessary to right the countrys fiscal ship. If federal spending had been chained to GDP, then $4.257 trillion would hprevented from 2001-2011. Tying federal spending to CPI would have generated $6.837 trillion in savings and would have produced a trillion surplus over the last ten years.5

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Actual Deficits Deficit/Surplus Constrained at National Income Deficit Constrained By CPI


14/48

= "> ; ? = =In 2012, the average American will labor 40 days to pay for state and local spending. This is the same as 10 years ago in 2002 and upfrom 39.2 days in 2010.

The Bureau of Economic Analysis shows that state and local government current receipts exceeded $2 trillion in 2010, including $50in federal transfers. Similarly, state and local spending is nearly equivalent to federal spending, with outlays amounting to roughly 1of GDP. The one-time injection of federal stimulus money threw state budgets into flux as those federal funds have dried up whspending strings attached to them remain. States now must make smart spending decisions to make their budgets whole.

In 2010, Wisconsin Governor Scott Walker aimed to close a $3.6 billion state budget deficit by confronting the unsustainable liabithe states pension and benefits system. His proposals ended collective bargaining for most state employee union members andpaycheck protection to workers. This prohibited unions from deducting dues from workers paychecks and allows employees towhether they would like to cut a check to their union.

In effect, this will save workers in Wisconsin anywhere between $800 and $1400 annually; savings that can be used to cover the modesin personal contributions the budget required them to make to their own benefits.6 The reforms required state employees to contribute 5.percent of salaries to their pensions and 12.6 percent to their health insurance premiums.7 Despite widespread backlash from organized labothis is well below the national average contributions required of union employees.8

A recent study conducted by the Beacon Hill Institute looked at the effectiveness of the Wisconsin reforms. It found the measures prpainful tax increases that would have damaged the states private economy. The study also showed that over 6500 public sector jsomewhere between 11,500 and 14,000 private sector jobs, have been spared due to the proposals cost-savings.9

Finally, the Walker budget saved Wisconsin taxpayers over $1 billion during its first year. In terms of COGD, this amounts to 1.37 daysin the Badger State. Coupled with other reforms, Wisconsin has gone from an almost $4 billion deficit to a surplus in two years, withoutaxes. Governor Walkers efforts should be used as a model for other states in order to reduce spending and tackle the unaffordable liabbloated public worker pay and benefits.

2 C OS T O F G OV ER NM EN T D AY 2012 REpORT

00.44

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00.14

00.04

00.93

90.39

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24.39

90

44.41

38.39

67.387

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4

67.39

8

00.83

00.73

00.63

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15/48

In recent years, most states increased taxes to increase spending even during economic downturns. This report compiles a list of tax by state from FY2003-FY2012. The list is based on data from the National Association of State Budget Officers (NASBO) witadjustments. First, we compounded the tax increases to reflect tax hikes adopted since FY2003 which have to be paid in successiSecond, we adjusted each states tax increase by population to produce a better comparison across states. Third, the taxes for eachindexed so all tax increases are stated in terms of 2012 dollars.

The index shows that this year, as in previous years, New Jersey is the leader among all states in terms of tax increases. Since FYGarden State increased taxes per resident by $5,721.82 for a total net tax increase of over $49.9 billion. Connecticut, Rhode Islan York, Nevada, Delaware, Tennessee and Minnesota also suffered per capita tax increases of over $2,000 in the same period.

From 2003-2012 only nine states reduced their taxes. This group is led by Idaho, North Dakota and Florida, all of which reduced theby over $350 per capita.

North Dakota, as in 2011, leads the states in reducing taxes. Since 2003, North Dakota has reduced taxes $428.85 per capita. Ovperiod, this is a net tax cut for North Dakotans of $280 million. This year, all nine states that reduced their taxes over the FY 2003period also reduced their taxes in 2012.10

For the first time since 2008, net taxes decreased across the states in FY2012. In total, states experienced a $596 million tax cut, llast years tax increases of $6.4 billion. However, many states are still attempting to squeeze their taxpayers to fund excessive spen

For example, the Maryland House of Delegates passed the Budget Reconciliation and Financing Act (BRFA) in May 2012. The acin a $300 million tax increase on Marylanders. The BRFA extends the Maryland Millionaire Tax to single filers making over $and joint filers making over $150,000.11 This tax hike alone will force Marylanders to work an additional 7 hours for COGD next year

More popular than ever with politicians are sin taxes, or excise taxes on certain products that policymakers can target under thesocial welfare efforts. The most constant targets are normally tobacco and sprits or wine, but recently sugar and soda have gained trevenue-hungry lawmakers as well.

Marylands budget also included two tax increases on tobacco. The tax on smokeless tobacco will rise from 15 percent to 30 percentax on little cigars will leap from 15 percent to 70 percent of wholesale.12

Similarly, in Illinois, Governor Pat Quinn recently signed into law a $1-a- pack cigarette tax increase to bankroll the states unstable Mprogram. In addition to the increase in the cigarette tax, the legislation also doubles the taxes on other types of tobacco.13

Estimates show that corporate tax, personal income tax and sales tax make up 80 percent of state tax revenue. In 2012, thirteen statheir corporate income taxes, constituting the large change in revenue measures from the previous year; these efforts resulted in a $1net corporate income tax cut. However, personal income taxes are on the rise, with $571 million in increased taxes on personal incominto effect in 2012. Finally, while sales taxes decreased by $690.5 million, targeted excise taxes on alcohol and cigarettes incr$97.1 million and $58.1 million respectively.14

STATE TAX INCREASES



New Jersey 49967.59 5721.82 50Connecticut 14778.53 4190.19 49Rhode Island 3571.91 3379.71 48New York 65111.80 3325.81 47Nevada 8688.41 3272.78 46Delaware 2812.37 3154.78 45Tennessee 14445.97 2279.22 44Minnesota 11107.41 2099.52 43Vermont 1239.65 1991.61 42Oregon 7513.02 1948.63 41Indiana 12371.30 1919.43 40Ohio 21246.12 1842.34 39Massachusetts 11623.13 1752.77 38

Michigan 15653.56 1576.19 37New Hampshire 1979.79 1495.84 36Kansas 3974.95 1399.08 35North Carolina 13007.71 1375.18 34California 50657.96 1359.34 33

Wyoming 671.69 1226.52 32Illinois 15866.36 1225.73 31Maine 1470.81 1120.24 30

Washington 5568.48 825.42 29Virginia 6040.76 759.64 28Colorado 3600.83 706.70 27Maryland 3998.64 696.96 26

Wisconsin 3203.88 565.21 25

New Mexico 1001.13 492.23 24Oklahoma 1755.96 471.47 23

Alaska 318.99 450.01 22Kentucky 1811.96 417.56 21

Alabama 1624.06 343.38 20Utah 891.60 314.97 19South Dakota 239.03 291.47 18Georgia 1484.89 149.86 17Texas 3602.49 142.88 16Mississippi 312.27 105.48 15Hawaii 126.29 97.14 14Iowa 187.07 61.88 13

Arkansas 155.62 53.47 12 Arizona 298.14 44.65 11Montana 23.87 24.35 10Missouri -24.62 -4.09 9Nebraska -176.18 -97.28 8Pennsylvania -2148.68 -170.09 7South Carolina -847.01 -184.25 6Louisiana -1249.70 -275.91 5

West Virginia -524.48 -287.31 4Florida -7111.79 -380.76 3Idaho -813.76 -521.71 2North Dakota -534.62 -817.73 1

C < ; 8 4 4 * I= 4 4 F 2003-2012

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4


17/48

On November 29, 2010 the Obama Administration enacted a two year federal worker pay freeze. The pay freeze was said $2 billion for the rest of the 2011 fiscal year.

In March, House Republicans looked to extend the pay freeze until 2015 in their FY2013 Budget Resolution. In addition to extendpay freeze, the Republican Budget would cut the federal workforce by 10 percent through attrition and increase employee contribubenefits. Overall, the budget would cut an additional $368 billion in workforce spending over the next decade.15

In 2010, the Americans for Tax Reform Foundation calculated the cost of hiring new GS-11 federal employees, the median federlevel.16 On average, each newly-hired GS-11 employee costs taxpayers $7 million dollars over the course of a 40 year career.1

In 2011, the federal government hired 53,933 new employees. The most significant cabinet expansions include:17, 18

GOVERNMENT EMPLOYEES

A widely cited 2010 USA Today study found that average federal salaries exceeded private sector salaries across 83 percent of These federal workers are less educated and less experienced than private sector workers in the same level of occupational responsibifindings suggest that federal workers receive a premium compensation package while taxpayers pick up the tab.19

In January 2012, a Congressional Budget Office (CBO) study compared the wages and benefits of federal and private sector employefound that overall, federal government employees received 2 percent more in total wages than they would have if the average wa

comparable to that of private-sector employees. The study takes into consideration observable characteristics of the workers, such as edattainment. The only level of education that is more prosperous in the private sector are those with a doctorate or PhD. In addition to comwages of federal and private sector employees, CBO also considers their benefit packages. The benefits included in the study are health retirement benefits and paid vacation. On average, the study finds that the benefits earned by federal civilian employees cost 48 percethan the benefits received by their private-sector counterparts.20

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18/48


19/48

THE REGULATORY BURDEN

The average American must labor 69 days in 2012 just to cover the costs of government regulations. 2012 regulations consum19 percent of gross domestic product. This is down two days from 2011.

The large jump in regulatory costs between 2008 and 2009 is because of an update to the Crain methodolgy used for calculating regcosts. Crain uses a World Bank index that is more comprehensive than the OECD index. The index values come from 1,751 data Significant advantages over the OECD index include: 1) larger data series, 2) Regulatory Quality Index (RGI) covering international eregulations in addition to domestic that newly includes rules and mandates affecting factor markets (for example, Americans with D Act), and 3) the World Bank index covers all business sectors.

Our conservative estimate of total regulatory costs takes into account only the cost of complying with regulations: the material resoulabor needed to carry out compliance. For example, if a regulation requires new pollution control equipment power plants, complianinclude the costs of manufacturing, installing, operating and maintaining equipment.

Not counted are the negative economic effects of regulatory requirementsthe deadweight loss of these policies. Deadweighsocietys valuation of goods and services forgone due to government rules. These hidden costs stifle the growth of the economythey introduce inefficiences and distortions, while reducing the economic reward left over for productive activity. Regulatioprevent new firms from entering the market or stop exisiting ones from expanding. They may even force some existing firmsbusiness altogether. In fact, regulations place small manufacturers at a competitive disadvantage relative to large manufacturcompliance costs per worker are twice as high.23 Overbearing regulations are disastrous for job creation since 64 percent of the net in the last 15 years were created by small businesses.24 The end result of regulation is a reduction in overall output, fewer jobs, lower wand suppressed economic growth.

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20/48

Each year, government regulators receive more funding to raise the costs of goods and services that taxpayers buy. In effect, taxpayersfor regulations: once for agencies to monitor growing government regulations and again when regulations increase prices those citi Although not counted as part of the COGD for regulation, the budget for regulators was $57.3 billion in 2012, or 1.3 days. This was an ifrom the previous year of $2.5 billion. Over the last ten years, regulator budgets have grown by 72.5 percent, much faster than the dgrowth in regulatory costs.25

An April 2011 study by the Phoenix Center found that the expansion of federal regulator budgets led to decreased economic growth andsector job losses. The study found that the regulators budget provides a financial gauge of regulatory activity.26 According to the study, a 5 percent reduction in regulator budgets would increase GDP by $376 billion and expand employment by 6.2 million jobs over theof five years.

The Reagan Administration attempted to simplify the regulatory burden on taxpayers and businesses in the presence of a slowing ein the 1980s. An illustrative measure of the regulatory burden, the federal register fell from over 85,000 pages to under 55,000 pageend of Reagans presidency.


46 ; > B 64Billions of Dollars

Source: Susan Dudley & Melina Warren, "Fiscal Stalemate Reflect in Regulator's Budget: An Analysis of the US Budget for Fiscal Years 2011 and 2012"


21/48

INTERSTATE MIGRATION

Several studies, including the American Legislative Exchange Councils Rich States, Poor States and past reports by Americans for TFoundation, have documented the migration of taxpayers from high tax to low tax states in recent years.

These studies exhibit strong evidence that taxes are the single largest factor in interstate migration, compared to factors such asemployment, family relocation etc.

Our analysis takes the former methodology one step further. Making use of date from the Internal Revenue Service (IRS), we calculathe number of taxpayers migrating and the adjusted gross income (AGI) that left the state. That is, we have calculated how much monterms of personal incomestates lose or gain due to the migration of taxpayers. Our findings confirm previous studies, in which taxpaystates with high taxes, unfunded pensions and healthcare liabilities.

Due to the ease of interstate migration, taxpayers can easily avoid higher taxes by moving to another state. Consequentially, there is a seffect wherein a rise in tax rates can lead to lower government revenues as individuals flee. There are nine states with no income taxFlorida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. In 2010 alone, these states gained a nof over 134,000 new residents; additionally, these migrants brought with them over $6.7 billion of net adjusted income, according to IR27

In contrast, the ten states with the highest tax burden: California, Connecticut, Maine, Minnesota, New Jersey, New York, Pennsylvania,Island, Vermont and Wisconsin lost around 200,921 residents and $7.4 billion of net adjusted income in 2009 alone.

From 2001 to 2010, the ten states with the highest tax burden lost over 2.5 million residents. These residents took with them a staggeringbillion in adjusted income.

During the same period, over 1.45 million migrants moved to the states with the lowest tax burdens, bringing more than $40.1 billiothem. The ten lowest tax burden states are Alaska, Louisiana, Nevada, New Hampshire, New Mexico, South Carolina, South D

Tennesee, Texas and Wyoming. In 2009 alone, these states gained 186,685 new residents and over $4.9 billion in adjusted gross inco

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22/48

At the same time, states with large unfunded liabilities for public employee health care and pension programs are also losing rIn particular, workers between the ages of 30 and 40, just entering their prime earning years, are fleeing future higher taxes needed tothe unfunded liabilities.

In accordance with the higher tax burden of states experiencing higher out-migration, these states also experience higher unemploymeThis places their increasing tax burden on an ever-shrinking tax base. Not surprisingly, the top five highest tax states consistently ha.5 percent higher unemployment rates than the five states with the lowest tax burden.

The migration of residents from high to low-tax states has been the biggest issue facing state governments in over ten years. Without sifiscal restraint as well as reforms in public employee pension and healthcare retirement programs, states with heavy tax and entitlemenwill continue to see residents leave for lower-tax states, further draining state treasuries.


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KY

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gain greater than 0.33%

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state with no income tax



Absent intervention from Congress, the United States is facing the largest tax hike in history on January 1, 2013. Known as Taxmaor the coming Fiscal Cliff, taxpayers will be hit with a $500 billion tax hike that year alone. This includes the sunset of the tprovided in the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation oexpiration of the Payroll Tax Holiday, the Alternative Minimum Tax (AMT) patch and dozens of business extenders.

In addition, the second wave of tax hikes in the Patient Protection and Affordable Care Act (PPACA) comes into play on January 1. The eof the tax provisions, coupled with the PPACA tax hikes, would bring revenues well above their historical averages, to 20 percent of G

The 2001 and 2003 Tax CutsThe Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) are commonly referred to as the Bush Tax Cuts, although they were also extended in 2010 by President Obama. While bmade significant changes to tax law, they are unique in that the changes were slated to take effect for only ten years. This allowed the pass the tax relief with only a simple majority, rather than the customary 60 votes. However, the current Congress now must grapple wto do when the laws are scheduled to sunset at the end of 2012.

The Bush Administration implemented a series of tax cuts and relief programs through EGTRRA to spur economic growth and job cfollowing the 2000 recession. The goal of the tax relief was to reduce burdens on individuals; however, the tax cuts were not targeted noin quickly enough to maximize their economic impact. By the end of 2002 the economy had lost 540,000 jobs and shed an additional 2by the first quarter of 2003.28 Congress passed and President Bush quickly signed JGTRRA in May 2003 to spur jobs and growth. This stax relief plan accelerated the 2001 tax cuts, making most of them effective immediately. Most importantly, JGTRRA reduced the topgains and dividends tax rates to 15 percent. As a result, the third quarter after JGTRRA was implemented the economy grew at an astrate of 7.5 percent. Additionally, in the fourth quarter payroll employment grew by 311,000 jobs.29

Originally scheduled to sunset in December 2010, the Obama Administration extended the tax cuts until December 31, 2012. With the su

the tax cuts the following changes will take place on January 1.30

Personal income tax rates will increase:

In addition to the income tax rates rising there will be a phase-out of itemized deductions as well as personal exemptions:

CASE STUDY: TAXMAGEDDON

B :4 * 4 2013 4

10%/ 15% 15%25% 28%28% 31%33% 36%35% 39.6%

* C 4= 2013 4

Death Tax 35% 55%Marriage Penalty None Re-instatedChild Tax Credit $1000 $500


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There will also be a slew of higher tax rates for savers and investors:

The Heritage Foundation notes that expiration of the Bush Tax Cuts alone will make up 34 percent, or $170 billion, of the $500 bTaxmageddon tax hike. Over ten years, the Congressional Budget Office (CBO) shows the tax hike on families amounts to $2.6 trill

Payroll Tax Holiday The payroll tax provision was a temporary tax cut put in place in 2010. It reduced payroll taxes from 6.2 percent to 4.2 percent, asomeone making $50,000 to keep an additional $1,000 of that salary in their bank account.

On January 1, 2013 Americans will see their payroll taxes rise once again. The expiration of the tax holiday is said to account for 25or $125 billion, of all Taxmageddon revenues.31

The Alternative Minimum Tax (AMT)The AMT was created by the Democratic Party under President Johnson to ensure that high earners benefiting from certain tax advantamaintained some income tax liability. However, over time, the AMT began to ensnare more families as income rose.

In December 2007, Congress passed a patch to the Alternative Minimum Tax (AMT), relieving 23 million Americans from paying the32

Originally, the AMT patch provided taxpayers with relief for one year, raising the income threshold in which families qualified. The plater extended until December 31, 2012. Today, the AMT hits 4 million people. With the expiration of the patch in Taxmageddon, thcreated to hit the rich will extend to 31 million families.

The combinations of the temporary taxes expiringthe Bush Tax Cuts, Payroll Tax Holiday and the AMT Patchare frightening ebut thats not the end of the tax hikes. This January the second wave of Obamacare tax hikes will hit Americans, and businesses willtaxes increase when more employer tax hikes take effect.

Obamacare: Wave TwoObamacare tax increases raise $502 billion in revenue over a ten-year span. This coming year, Americans will see their Medicare Paincrease, caps placed on Federal Spending Accounts(FSA), a new Medical Device Tax and a haircut for medical itemized deduct33

ii Currently, the death tax has a $10 million exemption for married couples, as of 2013 the tax is implemented on any estate worth over $1 million.iii The 2.9% is on all wages and self-employment, in 2013 the rate increases for singles making more than $200,000 and married couples making more than $250,000.iv Exemptions apply to items retailing for less than $100v

Before Taxmageddon, individuals only needed there high medical expenses to equate to 7.5% of the adjusted gross income (AGI) after Taxmageddon the necessary AGI rises to 10%

* C 4= 2013 4

Capital Gains 15% 23.8%Dividends 15% 43.4%

* C 4= 2013 4

Medicare Payroll 2.9% 3.8%iii

Medical Device No Excise Tax 2.3% exciseiv

Haircut 7.5% of AGI 10% of AGIv

FSA No cap $2500 cap



No household making more than $1 million eachyear should pay a smaller share of their income in

taxes than a middle class family pays, says the

Obama Administration. The White House claims that

22,000 households had an income above $1 million in 2009

and paid less than 15 percent of their income in taxes. In

addition to the 22,000 that paid 15 percent, it is stated that

1,470 households paid no federal income taxes.34

The Obama Administration takes this as an example of how the U.S. tax system is unfair, an argument that has

crystalized in 2012 over what has come to be known as the

Buffett Rule. The Rule is named after well-known

millionaire Warren Buffett who claimed publicly that he

pays fewer taxes than his secretary. Similar to the AMT, the

Buffett Rule would set a flat minimum income tax of 30

percent on all income for top earners. Obama and some

Members of Congress support this rule, alleging that it

ensures every American pays their fair share in taxes.35

However, looking solely at income taxes doesnt show the

whole picture. High earners are subjected to corporate

income tax as well as dividend and capital gains taxes. At the

end of the day, Warren Buffett and other top earners pay

more than any other tax bracket. Even the Presidents own

economic advisors note that the top one percent pay twice as

much as the middle 20 percent. In 2012, top earners are

expected to pay an average of 29.6 percent in income,payroll and corporate taxes, while the middle 20 percent

of America paid 13.3 percent in income, payroll and

corporate taxes.36

America already has a steeply progressive tax code. The top1 percent of earners pay 40 percent of all income taxes and

28 percent of all federal combined taxes. The lower half of

all income earners, those making less than $33,000, pay 3

percent of all income taxes and less than 1 percent of all

combined federal taxes.

The Buffett Rule, like the AMT, isnt just a tax on high

income earners but also on small businesses. Most small and

mid-size businesses are organized as S-corporations, LLCs,partnership, or sole proprietors whose taxes are assessed

through their profits on personal tax returns. Further, the

majority of small and mid-size employer profits face taxation

at the top marginal income tax rate.37 Thus, businesses

profits, capital gains and dividends will now be subjected to

the Buffett Rule.

The Administrations focus on the Buffett Rule

demonstrates how it is a political tool rather than a seriousfiscal solution. The Joint Committee on Tax estimates a

version of the Buffett Rule would raise $31 billion over the

next ten years, which is less than one-tenth of one percent of

all revenue expected to be collected during that time. What

is more appropriate, for those Warren Buffetts in the world,

is the idea of a Buffett Line. The Buffett Line would

simply add an extra line to the 1040 tax form that would

allow taxpayers to write-in a voluntary donation to Treasury

for debt reduction. With a Buffett Line, Warren Buffett andothers who feel the rich should pay more for the

governments overspending problem could rest easy

without penalizing small businesses and families for their

patriotic guilt.

THE BUFFETT RULE - OBAMA'S AMT


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ExtendersBusiness extenders refer to a handful of temporary deductions and credits devised as a response to Americas proscriptive tax trebusiness and entrepreneurship. Like permanent deductions and exemptions, they should not exist in a broad-base, low-rate tax code.

However, these business deductions and credits are a response to the disadvantage American employers face with the highest corporatin the developed world. Getting rid of them is a good idea, but only in the context of fundamental tax reform that is revenue-neutral andmarginal tax rates. Piecemeal elimination, without offsetting the increased in revenues, serves to harm businesses and employers strustay competitive in todays economy.

Some of the changes taking place on January 1 are:

Economic Impact of TaxmageddonFederal Reserve Chairman Ben Bernanke recently compared Taxmageddon to a massive fiscal cliff.38 While Congress decrees that the 2001and 2003 Tax Cuts created relief for the wealthy, middle income Americans will experience a reinstatement of the death tax and inc

their income taxes. Outside of the Bush Tax cuts, middle income families face an increase in their payroll taxes, the possibility of p AMT, and a limit on tax credits such as educational tax credits.

Despite lawmakers platitudes to deficit reduction as a justification for tax hikes, history shows that any new revenues will be usmore spending, not to reduce debt.

These tax increases hurt the economy, employment and wages of Americans. Overall, we can expect that the federal government wilits spending per household from $30,015 this year to $34,602 next year.39 After serious efforts to cut spending were undertaken this ye Americans were granted a slightly earlier COGD in 2012. If Taxmageddon is allowed to hit, taxpayers will likely see a permanenincreasingly later Cost of Government Days in 2013 and beyond.

After the $500 billion (minimum) Taxmageddon windfall, we anticipate that COGD for 2013 will have an additional 11.67 days This could make 2013s COGD the latest yet.

* C 4= 2013 4

Research and Experimentation Tax credit EliminatedIRA charitable contributions Permitted No permittedTuition and Fees Deduction No deductionEducation Credits EliminatedTeachers Deductions EliminatedCoverdale Education Savings Account $2000 $500 Cap



The Debt Limit The debt limit is ostensibly a means to restrain spending by statutorily limiting the amount of borrowing the federal government may dothe government has reached the limit it is forced to either extend its borrowing abilities or revisit its spending habits. In 2011, the Tdepartment threatened it would have to dip into social security, military spending or Medicare to keep the United States from defaultinobligations.40 Previously, the threat of this kind of austerity has relegated the debt limit to little more than a leaking pointevery timgovernment got close to its borrowing limits, it would simply raise the debt ceiling, absolving itself from the spending restraint a limit onis supposed to instill. Fortunately, the tide turned for taxpayers during the debt limit debate in 2011.

The 2011 Debt DebateImportantly, the debt limit debate in 2011 was defined by the fact that there was an actual debatethe debt ceiling has been raised tesince 2001 without a single effort to address the crisis of habitual deficit spending. Instead, after unilaterally refusing to allow tax hpart of the final deal, House Republicans established a new standard for extended borrowing authority. Referred to as the Boehneafter Speaker of the House John Boehner, the new standard requires that any increase in the debt ceiling must be met with an eqgreater, dollar amount of spending cuts. On August 2, the Budget Control Act of 2011 was signed into law, cementing this standardzero tax hikes, the BCA requires cuts to spending that exceed the increase on the debt limit, spending caps that will control future spa vote on a Balanced Budget Amendment (BBA) to the Constitution, and the establishment of the Joint Committee on Deficit Red(JCDR).41

Budget Control Act of 2011The increase in the debt limit came in two installments. The Budget Control Act of 2011 placed caps on discretionary spending, would reduce spending by an approximated $900 billion. With the implementation of the act came the immediate, first, increase obillion to the debt limit. The second increase, of $500 billion, required both chambers to vote on a Balanced Budget Amendment before it was approved.

The Act then created a Joint Committee on Deficit Reduction charging 12 lawmakers with finding up to $1.5 trillion in savings ovnext ten years. If the JCDR approved additional deficit reduction of at least $1.2 trillion, the debt ceiling could be increased by $1.5 If the JCDR offered savings of anything less than the scheduled $1.2 trillion, the debt ceiling could only be increased by $1.2 However, the BCA states that at least $1.2 trillion in savings must be realized so a sequester was put in place to ensure that if thcame up with less than that amount, an across-the-board cut would make up the difference. Similarly, if the JCDR did not offer any sa sequestration would take effect for the full $1.2 trillion.42

The Joint Committee was required to report its savings by November 23, 2011. It failed to offer any plan to cut spending, triggesequester to take place starting in 2013. The sequester will cut $1.2 trillion in spending; the same amount by which the debt limit mbe increased.

With the BCA, taxpayers were awarded almost $1 trillion in spending cuts with caps placed on discretionary spending. This representestep forward after years of bailouts, stimulus spending plans and bloated omnibus spending bills. Importantly, a new metric was esthat keeps the focus on the real fiscal problemgovernment spending. By implementing the Boehner Rule, and upholding commitment to not increasing taxes, the debt limit debate in 2011 bodes well for taxpayers in years to come.

CASE STUDY: The Debt Ceiling and the Budget Control Act of 2011


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Impact on COGDCBO reports discretionary spending in 2011 was $1,346 billion and $1,308 billion in 2012, for an overall reduction in spendi$38 billion.43 Without the Budget Control Act of 2011 this reduction in discretionary spending would have saved the American p.88 days, or 21.3 hours in terms of COGD. The first $917 billion in savings from the discretionary caps in the BCA will save tax21.4 days. The $1.2 trillion in savings from the sequester amounts to a spending reduction equal to 2.8 days for 2012.

The Budget Control Act of 2011 avoided a debt crisis without raising taxes. It lays the groundwork for lasting restraint in govespending, necessary to reduce the deficit and promote economic growth.



The House Budget Committee has offered some of the most serious proposals of the past few years to avert a spendieconomic crisis. Provisions under the FY 2013 Budget will cut spending by $6 trillion over the next ten years spending below the historical average of 21 percent of GDP by 2016. The plan saves entitlement programs by giv

more flexibility in welfare and Medicaid spending and allows taxpayers to invest in their own healthcare.44 Additionally, it requirpro-growth tax reform, cutting individual and corporate tax rates.

How does it Replace the Sequester? After the Joint Committee on Deficit Reduction was unable to propose a plan to cut spending as laid out in the Budget Cont2011, an automatic sequester is required to take effect in 2013, a scheduled $109 billion cut to discretionary spending. TheProsperity reprioritizes the sequester savings by targeting mandatory spending.45 It instructs six committees with jurisdiction omandatory spending programs to find savings beyond those of the intended sequester through a process known as reconcilisix committees are: Agriculture, Energy & Commerce, Financial Services, Judiciary, Oversight and Government Re Ways & Means. Between the six committees, they will produce at least $18 billion of deficit reduction in 2013.46 The budget calls freforms with Medicare, Medicaid and other entitlement programs as follows:

vi$2.4 trillion worth of spending cuts to Medicaid and other health care programs over ten years, Center on Budget and Policy Priorities

& >6 < 45> < = 4 4 & ; = &; =

Obamacare REPEALEDsaving Americans $1.6 trillion by 202247

Medicare Establishes a premium-support system. Caps Medicare spending at thegrowth rate of GDP plus .5 percent6

Medicaid Block grants federal aid, offering flexibility to the states to design theirMedicaid programs in a way that targets aid for those who need it most.48

SNAP Converts into a block grant based on states low-income population,indexed for inflation. Eligibility requirements are instated in 2016.This will save $38.5 billion over the decade

Slush Funds The Obamacare Public Health and Prevention Fund will be eliminated. Additionally, taxpayers will save billions through the elimination of theDodd-Frank too big to fail bailout fund.49

THE RYAN BUDGET: THE ROAD TO PROSPERITY


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While the Congressional Budget Office is required by law to score legislation on a static basis, taking a more realistic look at the HRepublican budget gives a clearer picture of how its reforms could restore solvency in federal finance. When the positive economic effpro-growth tax reform are taken into account, the federal budget could be balanced in the mid-to-early 2020s.50 CBO notes that the debtthat would occur under the paths specified by the Chairman and his staff would lead to higher national income over the long run.51

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(D458 8 / ?; % >5 GD&)

Impact on COGDThe Paul Ryan Budget Plan cuts federal spending by $5 trillion over the next decade. We find that laborers in America will save 87.94of work over the next ten years under the House FY 2013 Budget.53 Under the House Republican Budget proposal, Americans are put back on the path to prosperity for generations to come.

Current Path Path to Prosperity



CASE STUDY: The Corporate Income Tax in the United States

What is the Corporate Income Tax in America?On April 1, 2012 Japan cut its corporate income tax rate, making the United States corporate income tax (CIT) rate the highest in the devworld. Since other countries do not necessarily have subnational member states, an accurate comparison of the United States corporate ratintegration of the state and national rates. The integrated federal/state corporate income tax rate is 39.2 percent.

Not only do American corporations now pay the highest corporate income tax in the world, they are also subjected to double taxationUnited States worldwide taxation system. Their profits are taxed once in the foreign country in which their company is operating ansecond time to make up the difference between rates. Since companies face no double taxation penalty until the funds are repatriated or wprofits are paid out as dividends, the current system encourages corporations to keep their profits overseas and invest abroad.

Compliance CostsDuring the 2010 fiscal year, corporate income tax returns amounted to 9 percent of federal tax revenues.54 The tax revenue accounts for 2.7 percentof GDP, accounting for an estimated $422 billion.55 The full cost of paying taxes, however, is a much larger expression than the amount onreturn. Compliance costs present a significant burden for companies as well. Compliance costs account for tax planning, filing paperwany other hassles caused by the complexity of the tax code.56 A National Taxpayers Union study found that in 2009, corporations paid $159 billiin compliance costs.57 This means private companies are paying nearly forty cents in administrative costs for every dollar they send to thegovernment in revenue.

Corporate ReactionCorporate income taxes distort economic decisions as well as reduce the economic well-being of the nation. In the United Stataverage federal/state integrated corporate income tax rate is 39.2 percent while the average corporate income of Organization for ECo-Operation and Development (OECD) nations is only 25 percent. In fact, amongst the four other countries with the highest corpincome tax rate 24 states in America have an integrated rate higher than Japan, 32 have an integrated rate higher than Germany, 4have an integrated rate higher than Canada and all 50 states have a higher integrated rate than France.58

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What does this mean for investment? The United States is one of the only countries in the world that taxes income earned overseas when it is brought back to the country. As of having the highest corporate income tax rate among OECD nations, United States competitiveness for investment continues to srecent study released by the National Bureau of Economic Research finds that corporate tax rates have negative impacts on aggregate inforeign direct investment and entrepreneurial activity. More specifically, researchers found that a 10 percent increase in the corporate is associated with a reduction in aggregate investment to GDP ratio by two percentage points. This incentivizes firms to keearnings overseas.

Currently, there is an estimated $1.4 trillion American-made dollars sitting in foreign bank accounts.60 vii Instead of bringing capital back to theUnited States to create jobs, increase wages, fund pensions or grow nest eggs, firms are keeping these funds abroad.61 In 2005, the Bush Administration oversaw a Repatriation Holiday, giving US multinational corporations a temporary, substantial relief from double taxprofit. The effective corporate income tax rate was lowered to 5.25 percent.viii During the year of repatriation over $300 billion flowed back the United States, providing over $20 billion in new revenues.

Had a similar holiday taken place in 2012, the United States would have experienced a capital inflow of over $800 billion at minimuresult, the Treasury could have expected at least a $40 billion windfall in tax revenue. This would have been non-inflationary wealth thcreate jobs and investments in America.

The following table compares the integrated state rates to other national rates:

viiiThe 5.25 percent tax rate comes from the 15 percent of dividend rate included in the corporate income tax rate. The corporate income tax rate is 35 percent; therefore 15 percent of 35 percent is 5.

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36/48


37/48

The oil and natural gas industry is one of the most robust industries in the American economy. The industry supports roughly 9.2 millioand produced $476 billion state and local revenues in 2010 alone.65 It is crucial that energy policies reflect the importance of the UnitStates continued investment in drilling and refining oil and natural gas.

Oil and Natural GasOil accounts for more than 35 percent of total American energy consumed. In 2011, the United States produced over 5.67 million bof oil per day, making it the worlds third largest oil producer.66 Furthermore, the United States has more than 1.44 trillion barrels otechnically recoverable oil resources that could power the country for the next 210 years at the current rate of consumption.67 While thepotential to recover these resources exists, federal policies prohibit full development of Americas vast resources.

Similar to oil, natural gas makes up 25.5 percent of Americas total energy, generating 24.8 percent of the nations electricity (heatinthe homes in the country). Natural gas provides electricity for manufacturers, vehicles, home heating and appliancesin 2011, theStates produced 23.0 trillion cubic feet of natural gas, becoming the worlds largest natural gas producer. It is estimated that more thatrillion cubic feet of technically recoverable natural gas resources exist; enough to power the nation for another 109 years at its curof consumption.

Reaching the Nations PotentialMuch of the United States resources are currently barred from production by federal policies; simply allowing Americas energy proexplore and drill for oil and natural gas would sustain current levels of consumption for decades. A 2011 Wood Mackenzie study cothe impact of increasing access to resources on lands that are currently off-limits to energy production, specifically the EasternMexico, Rocky Mountains, the Atlantic Outer Continental Shelf (OCS), the Pacific OCS and the Alaska Wildlife Refuge ANWR lands. The study showed that implementing positive federal access policies to these lands could produce an additional 1.27 millioof oil per day, by 2015. The study showed that streamlining permitting and lease sales would expand employment in the industry, can additional 130,000 direct jobs and an additional 330,000 indirect jobs by 2020. Also a boon for local and federal governments, o

billion in revenues would be generated if productive federal policies were put in place.68

CASE STUDY: Abundance of Supply: Americas Energy Resources

New Leases Issued

Drilling Permits Appro

"4 4 = &4 = F4 4 ; " =

Source: Bureau of Land Management, Oil and Gas Statistics


38/486

Why arent we there yet?Currently, the federal government owns 28 percent of the land in the United States (a vast majority in the energy-rich western statesamounts to 1.76 billion of acres of land, both on and off shore. Of that, the federal government leases less than 2.2 percent of federal areas and less than 6 percent of federal onshore lands for oil and natural gas production.69

In order to begin drilling on federal lands to produce oil and natural gas, companies are required to obtain government leases and pHowever, under President Obama, oil and gas production on federal lands has declined. In 2012, applications for peto drill are down 36 percent and natural gas production is down 14 percent from 2010. Compared to ten years ago, oil and natupermits are down by more than 40 percent; 2010 saw the lowest number of federal onshore leases issued since 1984.70

COST OF GOVERNMENT DAY 2012 REpORT

/40 A2C8>= 1H C74 %10


39/48

In addition to these regulatory burdens, for the fourth consecutive year President Obama is proposing taxing energy produfund his bloated government. President Obamas FY2013 budget proposes a whopping $86 billion in tax hikes on oil and ngas producers. The President hopes to do this by repealing energy producers Section 199 tax deduction and a slew of other exprovisions employed by a variety of industries. Currently, oil and natural gas companies are able to deduct six perctheir income from domestic productionevery other industry that employs this deduction is afforded a nine percent tax deduIn addition to repealing Section 199, the Presidents budget also repeals the expensing of drilling costs, LIFO (last- in, first-out mthe deduction for tertiary injections and percentage depletion mechanisms. Currently, these provisions help companies recover cohedge against volatile price swings.

Other provisions under the FY2013 budget include modifying the dual capacity rule wherein oil and natural gas companies will factaxation on income earned abroad, reinstating superfund taxes and increasing the geological and geophysical amortization period. Altax hikes discourage oil and natural gas production and the economic benefits tethered to these activities.

If the total $86 billion in tax increases were to fall in 2012, COGD would increase by an additional 2.0 days. This heavy regulatoryplaced on the industry will prevent research and development as well as the nation reaching sustainable energy practice.

I 4< C>

Section 199 Repealed $11.6 billionExpensing of Intangible Drilling Costs Repealed $13.9 billionDual Capacity Rule Modified $10.7 billionLIFO Repealed $25.8 billionDeduction for Tertiary Injections Repealed $100 millionG&G Amortization Period Increased $1.4 billionSuperfund Taxes Reinstated $10.5 billionPercentage Depletion Repealed $11.5 billionTotal $86 billion 74


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A Glimmer of Hope

While development of oil and natural gas on federal lands is down, production on private lands is flourishing. Largely located on privthe North Dakota Bakken formation is free of federal government permitting and leasing delays.75 Without federal interference, the Bakkenformation is responsible for creating tens of thousands of jobs, lowering unemployment levels, and vaulting North Dakota to the 2ndoil producing state in the U.S.76

Rather than hindering the production of the Keystone Pipeline and increasing taxes on energy, the current administration should strepermitting and codify current tax policies. The last four years represent a foregone opportunity, foregone employment and foregone creating a later Cost of Government Day.

COST OF GOVERNMENT DAY 2012 REpORT

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luJ-41

luJ-31

Projected COGD

C GD 2012 8 8; = ; G 46; 8>=


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METHODOLOGY

The Cost of Government is determined by adding the figures for government spending (federal, state and local expenditures) and an eof compliance costs of government regulations (both on the federal and state level).

The total cost of government is then divided by estimated gross domestic product (GDP) to determine the percentage of national iconsumed by the government. This percentage is applied to the 365.25 weighted calendar year to determine the Cost of GovernmePrevious studies, before 2012, used the net national product to determine this. As a result, the Cost of Government day appears tosooner than all previous COGDs; however, adjusting for gross domestic product it is evident that this years COGD falls only threarlier than 2011s. GDP is found to be far more appropriate measure of the economy as well as a more standardized measure.

All spending figures are based on calendar years and, among others, utilize Congressional Budget Office (CBO) reports, Bureau of E Analysis National Income Product Account (NIPA) data, and the National Governors Association and the National Association Budget Officers (NASBO).

State tax increases are derived from the NASBO data with three adjustments.

The calculation of Cost of Government Day for each state is based on the varying government burdens suffered in each state. spending burdens vary because relatively higher burdens are borne by states with relatively higher incomes. Of course, state andand spending burdens vary by state as well.

A 2010 report for the U.S. Small Business Administration Office of Advocacy by Nicole Crain and Mark Crain provided the framewdetermining the cost of federal regulations.

Data on federal and state works was provided by the US Bureau of Labor Statistics and the US Office of Personnel Management.

The migration data was provided by the Internal Revenue Service Office (IRS).


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24 Small Business Administration Office of Advocacy, "Frequently Asked Questions," http://www.sba.gov/advo/stats/sbfaq.pdf

25 Dudley, Susan and M. Warren.Fiscal Stalemate Reflect in Regulators' Budget: An Analysis of the US Budget for Fiscal Years 2011 and 2012 . 2012 Annual Report, Regulators'Budget Report 33, 11 May 2011. Table 1, pp.5. http://wc.wustl.edu/files/wc/2012_Regulators_Budget.pdf

26 Bear, T. Randolph, G.S. Ford, H. Kim and L.J. Spiwak.Regulatory Expenditures, Economic Growth, and jobs: An Empirical Study . Pheonix Center Policy Bulletin No. 28. April2011, pp. 4-5. http://www.pheonix-center.org/PolicyBulletin/PCPB28Final.pdf

27 Internal Revenue Service. US Population Migration Data. http://www.irs.gov/taxstats/article/0,,id=212683,00.html

28 Foster, J.D. "The Tax Relief Program Worked: Make the Tax Cuts Permanent." The Heritage Foundation 18 June 2008.http://www.heritage.org/research/reports/2008/06/the-tax-relief-program-worked-make-the-tax-cuts-permanent

29 Ibid.

30 Ellis, Ryan. Taxmageddon is January 1, 2013. Americans for Tax Reform. 9 April 2012. http://www.atr.org/taxmageddon-january-a6831

31 Dubay, Curtis. "Taxmageddon: Massive Tax Increase Coming in 2013," The Heritage Foundation. 4 April 2012.http://www.heritage.org/research/reports/2012/04/taxmageddon-massive-tax-increase-coming-in-2013

32 AMT Patched, Taxpayers Win. Americans for Tax Reform. http://www.atr.org/amt-patched-taxpayers-win-a1853

33 Ellis, Ryan. Taxmageddon is January 1, 2013. Americans for Tax Reform. 9 April 2012. http://www.atr.org/taxmageddon-january-a6831

34 The Buffett Rule. The White House. http://www.whitehouse.gov/economy/buffett-rule

35 The Buffett Rule. The White House. http://www.whtiehouse.gov/economy/buffett-rule

36 Economic Report of the President. Council of Economic Advisors. Chapter 3: Restoring Fiscal Responsibility, p. 7http://www.whitehouse.gov/sites/default/files/microsites/ERP_2012_ch_3.pdf

37 Ellis, Ryan. ATR Supports H.R. 9, the "Small Business Tax Cut Act." Americans for Tax Reform. 18 April 2012. http://www.atr.org/atr-supporters-h-r-small-business-

38 Dubay Curtis. Taxmageddon: Massive Tax Increase Coming in 2013. The Heritage Foundation. 14 April 2012.http://www.heritage.org/research/reports/2012/04/taxmageddon-massive-tax-increase-coming-in-2013

39 New Federal Budget in Pictures: Soaring Taxes, Spending and Debt Put All Americans as Risk, The Heritage Foundation. 24 April 2012.http://www.heritage.org/research/reports/2012/04/new-federal-budget-in-pictures-soaring-taxes-spending-and-debt-put-all-americans-at-risk

40 Smith, Robert. "The History of the Debt Ceiling," NPR. 16 May 2011 http://www.npr.org/blogs/money/2011/05/17/136363196/the-history-of-the-debt-ceiling

41 Summary of the Revised Budget Control Act of 2011. Fact Sheet.Speaker of the House: John Boehner.http://www.speaker.gov/News/DocumentSingle.aspx?DocumentID=254628

42 Duppler, Mattie. Members Should Support BCA of 2011. Americans for Tax Reform. 1 August 2011. http://www.atr.org/members-support-budget-control-act-a6382

43 Congressional Budget Office, "CBO's Budget and Economic Outlook: Fiscal Years 2012-2022. January 2012, pp. 10, table 1-3.http://cbo.gov/sites/default/files/cbofiles/attachments/01-31-2012_Outlook.pdf

44 Duppler, Mattie.Vote Alert: ATR & COGC Urge Support of Ryan Budget. Americans for Tax Reform. 28 March 2012. http://www.atr.org/vote-alert-atr-cogc-urge-support-a67

45 Appendix II: Reprioritizing the Sequester Savings http://budget.house.gov/UploadedFiles/Pathtoprosperity2013.pdf

46 Ibid.

47

Path to Prosperity, Appendix I: Summary of Tables. House Budget Committee. http://budget.house.gov/UploadedFiles/Pathtoprosperity2013.pdf 48 Ibid.

49 Appendix II: Reprioritizing the Sequester Savings http://budget.house.gov/UploadedFiles/Pathtoprosperity2013.pdf

50 Ryan, Paul. "The Fiscal Effects of Faster Growth-The Budgetary Impact of the Path to Prosperity under Alternative Growth Scenarios." House Budget CommitteeMarch 2012.

51 "The Long-Term Budgetary Impact of Paths for Federal Revenues and Spending Specified by Chairman Ryan," Congressional Budget Office. 20 March 2012.

52 Ryan, Paul. The Fiscal Effects of Faster Growth- The Budgetary Impact of the Path to Prosperity under AGS.


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53 Congressional Budget Office, "CBO's January 2012 reportThe Budget and Economic Outlook: Fiscal Years 2012-2022 ," Table 1-1. http://www.cbo.gov/publication/42908

54 The Numbers: What are the federal government's sources of revenue. Tax Policy Center. http://www.taxpolicycenter.org/briefing-book/background/numbers/rev

55 OECD Statistics. Revenue Statistics, Comparative Tables. http://stats.oecd.org/Index.aspx?QueryId=21699

56 J. S. Moody, W.P. Worcholik and S.A. Hodge-"The Rising Cost of Complying with Federal Income Tax." Tax Foundation. 10 January 2008.http://taxfoundation.org/article/rising-cost-complying-federal-income-tax

57

"Tax Compliance Time Costs $227 Billion," Olympia Business Week. 25 March 2012 http://www.olympiabusinesswatch.com/2012/03/tax-compliance-time-costsbillion.html

58 Hodge, Scott A. "U.S. States Lead the World in High Corporate Taxes" Tax Foundation. 18 March 2008 http://taxfoundation.org/article/us-states-lead-world-highcorporate-taxes

59 Djankov S., T. Gansler, C. McLiesh, R. Ramalho, and A. Shleifer (2009).The Effect of Corporate Taxes on Investment and Entrepreneurship.National Bureau of EconomicResearch. www.nber.org

60 Wahlen, Michael J., "Update: 30 Free Market Groups Support Repatriation This Year" Americans for Tax Reform. 30 November 2011. http://www.atr.org/free-magroups-support-repatriation-a6612

61 Ellis, Ryan. One Month to Go Until We Have the World's Highest Corporate Tax Rate. Americans for Tax Reform. 1 March, 2012. www.atr.org

62 The President's Framework for Business Tax Reform. February 2012. The White House and the Department of Treasury. www.whitehouse.gov

63 Ellis, Ryan.Obama's Business "Tax Reform" is a Tax Hike In Disguise. Americans for Tax Reform. 22 February 2012. www.atr.org/obamas-business-tax-reform-hike-disguise-a67

64 Ellis, Ryan. 20 is the New 25- In Corporate Income Tax Reform. Americans for Tax Reform. 26 September 2011. www.atr.org

65 Energy Tomorrow- Oil. www.energytomorrow.org

66 "Hard Facts:Basic Energy Facts," Institute for Energy Research. http://www.instituteforenergyresearch.org/hardfacts/hard-facts-basic-energy-facts/

67 Prandoni, Christopher. "Abundance of Suppy: ATR's Energy Candidate one pager," Americans for Tax Reform. www.atr.org

618 Energy Policy at a Crossroads: An Assessment of the Impacts of Increased Access versus Higher Taxes on U.S. Oil and Natural Gas Production, Government ReEmployment American Petroleum Institute. 24 June 2011. http://www.api.org/policy/tax/recentstudiesandresearch/upload/SOAE_Wood_Mackenzie_Access_vs_Ta

69 Hard Facts - An Energy Primer. The Institute for Energy Research. 2012. http://www.instituteforenergyresearch.org/wp-content/uploads/2009/04/Hard-Facts-Final

70 Bluey, Rob. "Under Obama, Oil and Gas Production on Federal Lands is Down 40%." Heritage Foundation- The Foundry. 18 January 2012.http://blog.heritage.org/2012/01/18/under-obama-oil-and-gas-production-on-federal-lands-is-down-40/

71 Costing American Jobs, Increasing Energy Prices. Natural Resources Committee http://naturalresources.house.gov/Issues/Issue/?IssueID=15410#2009

72 "Employment, Government Revenue and Energy Security Impacts of Current Federal Lands Policy in the Western US, 2: Adverse Federal Land Policies," AmericPetroleum Institute. January 2012. http://www.api.org/Newsroom/upload/API_Booklet_Jan_2012_v2-1.pdf

73 "Costing American Jobs, Increasing Energy Prices". Natural Resources Committee http://naturalresources.house.gov/Issues/Issue/?IssueID=15410#2009

74 "FY2013 Budget Calls for Targeted Tax Increases on America's Oil & Natural Gas Producers." American Petroleum Institute. http://www.api.org/policy-and-issues/~/media/3E404873038D44DA8685086ED083C9EF.ashx

75 Kludt, Tom. "North Dakota Proves Newt Gingrich Wrong on Energy," TPM. 30 March 2012. http://2012.talkingpointsmemo.com/2012/03/gingrich-north-dakota-production-new-regulations.php

76 Prandoni, Christopher. Americans for Tax Reform. www.atr.org



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NOTES



NOTES


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cost of government 2012

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