All publications
The Price of the State is Half of the GDP
The regulatory burden reaches one third of the income of an American family. Analysis of calculation methods of the leading US Institutes. Lessons for Ukraine
18 September, 2024
Governance and Regulations
Fiscal Policy
Share
VIP-disposers, consumers of other people's property and court theorists of the Big State use all sorts of combinations of factors to justify various instruments of state regulation. They do not burden themselves with accurate calculations and audits of their own forecasts and plans, do not present scientific evidence or concrete calculations, although proof of the need to introduce, preserve or modify one or another form of state regulation is a function of the State. Therefore, state regulation has long since turned into a religion.
In the USA, this gap in the assessment of the full regulatory burden on the economy was filled by two organizations: National Association of Manufacturers (NAM) and the Competitive Enterprise Institute (CEI) think tank, whose scientists deal with one of the most important topics of modern political economy: assessment of the regulatory burden.
At the end of July 2024, the American Competitive Enterprise Institute published its annual (already the 31st) report on the state of the US regulatory environment, entitled “Ten Thousand Commandments. Regulations 2024”.
Experts of the American Competitive Enterprise Institute have developed their own methodology for assessing the regulatory burden at the federal level. Although, like any methodology, it is imperfect and causes controversy and claims, it is based on common sense and calculations, therefore it is taken into account by policymakers at various levels of government in the United States.
International Liberty Institute ILI considers it expedient to apply the approaches of the mentioned respected think tanks to the assessment of the regulatory burden of Ukraine.
To begin with, we will provide data on the "regulator" of the US federal level.
This is far from the whole burden, since the states and local governments are also actively engaged in interventionism. What is interventionism? This is when state bodies determine parameters, frameworks for the use of private property, exchange of values between people, as well as modes of use of various forms of capital during the production of goods or services.
According to CEI's estimate, the total cost of complying with the regulatory requirements of the US federal government in 2023 was $2117 bln or 7,7% GDP.
The other organization, NAM, estimated the aggregate costs of government regulation to be $3079 bln or 11% GDP. The costs of American households are given below:
The regulatory tax in the US exceeds what the average family spends on health care, food, transportation, entertainment, clothing, services and savings. More regulatory tax on housing costs alone: $24,298 per year.
- Collections from the regulatory tax of $2.1 trillion are almost four times higher than the receipts from the corporate income tax, which amounted to $546 billion in 2023.
- Fees from the regulatory tax are 9% less than income from the income tax from citizens ($2328 bln)
For comparison, the gross profit (before tax) of the entire American economy in 2023 amounted to $3,523 billion, and the regulatory tax, according to the CEI assessment, is 60% of this indicator. According to the NAM assessment, it is 80%.
For convenience, let us imagine the US regulatory tax collection as a separate country. In terms of size, it would be the tenth largest economy in the world, larger than, for example, Italy.
According to the Information Collection Budget, it would take the equivalent of 14,883 human lives to complete all the paperwork required to meet federal regulatory requirements alone in 2023.
At a gross hourly cost of $35, the total cost of filling out all the paperwork was $28.05 billion.
If the regulatory tax of $2.1 trillion is added to the federal budget expenditures of $6.1 trillion, the sum will be 30.1% of the country's GDP! This is without the expenses of states and local governments.
The US government plans to increase federal spending to $7 trillion in 2027 and over $10 trillion in 2034.
In 2023, the federal budget deficit amounted to $1.695 trillion. It is predicted that by 2031 it will exceed $2 trillion.
In this regard, it is worth mentioning that Donald Trump accepted the presidency in 2017 with a national debt of $20 trillion, handing over the position to Joe Biden at the end of 2020 with a national debt of $28.1 trillion.
In August 2024, this indicator exceeded $35 trillion, of which only interest on the federal government debt will amount to $870 billion.
The federal level is a significant, but not all, regulatory burden.
Let us add local government fees to it as well, and count the final numbers that are needed to understand what part of GDP they make up.
So, in 2023, the federal expenditures were 22.4% of GDP.
According to the IMF, the aggregate government expenditures of all US government bodies amounted to 38.07% of GDP or $10.4 trillion.
If the federal expenditures are $6.135 trillion, then the rest is $4.265 trillion (15.6% of GDP).
| Entries | Expenditures | % GDP |
|---|---|---|
| federal expenditures | $6,135 trillion | 22,4% |
| expenditures of other government bodies | ~$4,265 trillion | ~15,6% |
| regulatory expenditures of federal level | $2,117 trillion | 7,7% |
| regulatory expenditures of local level | ~$821 million | 3% |
| TOTAL | ~$19,473 trillion | ~48,7 % |
In 2023, the expenditures of the US government bodies, including the regulatory tax of all government bodies, amounted to almost half of the country's GDP!
This is the real size of the state in the US economy, even without taking into account state ownership and transaction costs, which are also estimated at 5% of GDP.
There is no doubt that America is on the path of nationalization, expanding the political and economic power of VIP- disposers and consumers of other people’s property at the expense of reducing the private sector’s freedom of choice.
The US economy in the 2020s is a model of the General Interventionist State.
The activity scope of institutions and mechanisms of a full-fledged free market is constantly narrowing.
VIP-disposers and consumers of other people's property created a powerful syndicate, under the guise of public-private partnership, the need to ensure sustainable development, implement the "green" agenda and finance thousands of programs within the framework of the modern manifestation of neo-Marxism in the form of DEI (diversity, equity, inclusion, justice and inclusiveness) and woke culture. The choice of such a path created numerous sources of imbalances and concentration of toxic assets in the American economy. Americans are paying for nationalization and the course to a socialist economy with inflation, a sharp weakening of the dollar, a rise in the cost of living, corruption and political turbulence.
The USA has not learned the lessons of history, has forgotten the basic principles of economic science, therefore it is torn apart by various types of crises.
Regulatory lessons for Ukraine
The report "Ten Thousand Amendments" is a valuable lesson for any developing country, especially for Ukraine.
According to the methodology of the Competitive Enterprise Institute and the National Association of Manufacturers, the average annual regulatory burden on one household in Ukraine is ~$1,620. This is the third largest expenditure entry of the average Ukrainian family. In the first place are food products ~ $2400.
Even if you take the most conservatively assessed tax burden of 30% of monetary income, the average Ukrainian family pays annually $1800. It is the second largest entry of household expenses. Can an average Ukrainian family afford such taxes during the war?
Source: Ten Thousand Commandments Sizing up the federal government's new rules and regulations 2024 Edition. Competitive Enterprise Institute. July 2024
The sum of ~$1,800 US includes not only payroll taxes, but also all those taxes that "sit" in consumed goods and services, including VAT, income tax, excise taxes, and others.
The situation in which the Ukrainian household gives ~57% of its monetary income to the State directly or indirectly is very close to the state of serfdom.Share
Modern political economy is at the junction of economic theory and practice. The Big State theorists tirelessly put forward various hypotheses regarding the status of the producer, the regime of exchange operations, the order of property use, cloaked in slogans of safety and well-being, justice and quality, protection from fraud, but there is emptiness behind these slogans.
If the people of Ukraine want to embark on the trajectory of rapid, long-term economic growth, if they want full personal, political and economic freedom for their country, if they choose a course to New West, and not on the poor, toxic "state plan", then it is categorically impossible to copy the current regulatory policy of the USA.
For Ukraine, as well as for other countries with a transition economy, the American tax system is unacceptable.
For obvious reasons, Ukraine cannot conduct monetary policy like the Fed, the central bank of America.
First of all, it needs to create institutions for the protection of private property, including a strong, modern army. This does not require a giant regulatory state with hundreds of thousands of bureaucrats, controllers, inspectors and security forces.
Ukraine needs full-fledged capitalism, a free market.
It is necessary to wear a humble shirt on the State in the person of the VIP-bureaucracy, so that it ceases to be an arena of struggle for oligarchs, Marxists, corruptors and barigs who are used to living at someone else's expense.
Decalogue of theorists and ideologues of state regulation:
- Two people independently, without the State as an intermediary, cannot come to an agreement, because a person is a wolf to a person, everyone tries to deceive, frame or twist the transaction of exchange only for their own benefit.
- The free market generates negative externalities that can only be neutralized by the State.
- People are unable to create high-quality institutions of private arbitration to resolve conflicts and disputes among themselves (courts, councils, platforms for mediation, etc.).
- People are too ignorant and careless to determine for themselves what is good and what is bad, what is favorable and what is harmful, therefore the State must protect them from the risks of their mistakes.
- The state is a group of omniscient, virtuous, fair, honest citizens who, with taxpayers' money, ensure human safety, economic and social development, as well as prevention of potential risks and threats. Only they are able to overcome the animal spirit of the free market and direct the country's resources to long-term, sustainable development.
- Businessmen are a constant source of threat for the Consumer and their competitors. They are always inclined to deceive, to hide information in order to "insert" their product/service. Satisfied with a high profit, they are ready for any offense. The state must regulate it in order to protect the citizen and society from their greed.
- If businessmen are not controlled via regulations, then the biggest, strongest, richest, most cynical will become monopolists and will impose their conditions on people regarding goods/services, limiting their freedom of choice.
- Businessmen without the help of the State are not able to establish the rules of the game, competition and resolution of disputes/conflicts among themselves.
- If the State does not regulate the producers of goods/services, they will destroy the environment, cut down all the forests, pollute the rivers, and turn the cities into stone jungles with landfills around them.
- In every society there are poor, weak and sick people. The state must regulate the economy to help them, because the people themselves are callous, stingy and incapable of compassion and solidarity.
Share
Topics
Governance and Regulations
Fiscal Policy
Yaroslav Romanchuk
A well-known Ukrainian and Belarusian economist, popularizer of the Austrian economic school in the post-Soviet space. He specializes in reforms in transitional economies in the post-socialist space.