Government is involving itself in ever more services. And we’re all paying for them.
T he federal government told the public it spent $6.8 trillion last year, or $20,000 for every man, woman, and child in the United States. Yet the federal government spent even more than it claimed. Last year the government estimated it would collect $640 billion in charges and fees for the services it offered, such as mailing packages and providing flood insurance. These charges and the expenditures they covered, another $2,000 or so per person, aren’t included in the traditional definition of government spending.
Commentators concerned about growing federal involvement in business have focused on issues such as its recent equity stake in Intel, which are concerning, to be sure. But federal, state, and local governments have all become more involved in business-like operations that few citizens can avoid but for which they must constantly pay.
The Postal Service, which collects $80 billion or so a year, is the most obvious and long-standing federal service. But the single largest type of federal charge, and fastest growing, is Medicare premiums, totaling about $150 billion a year.
Some could argue this is just the cost people are willing to pay for a convenient public service. But Medicare premiums only cover 15 percent of the program’s expenses. The rest is covered by taxes and borrowing. As in so much of government, the service Medicare offers is one people can’t refuse.
The massive Tennessee Valley Authority and Bonneville Power Administration together earn tens of billions of dollars in energy sales a year. These agencies have substantial debts that could burden not just future consumers of their services but the general government.
The government also operates several insurance funds that rake in billions each year, including deposit insurance for banks, pension insurance for private companies, flood insurance for homeowners, and crop insurance for farmers. Despite the income these programs generate, their main function is to transfer risk from the private sector to the public sector.
State and local governments have been ratcheting up business-like activities and charges too. In 1950, only about 1 percent of national income went to state and local charges. But by 2022, state and local governments charged $830 billion for their services and utilities, or over 3 percent of the economy.
The two largest sources of state and local charges are from students at public universities and patients at public hospitals. “Eds and meds” consumers are heavily bolstered by federal subsidies, meaning states and cities have figured out how to capture ever-larger amounts of fees from people who are themselves supported by the federal government. Federal laws force the government to expand subsidies when state and local governments expand these services.
State and local governments also have involved themselves in a bewildering array of enterprises better left to the private sector and have done so long before New York City mayoral candidate Zohran Mamdani proposed his city-owned grocery stores. They earn income from government hotels, housing, golf courses, convention centers, airports, industrial parks, tech incubators, theaters, stadiums, retirement homes, gas distribution lines, parking garages, and so forth.
State and local government-run businesses are rife with waste and corruption. Just last month the city-run grocery store in Kansas City closed after taxpayers spent $18 million supporting it. Also last month an Ohio county commissioner was indicted for his part granting awards in exchange for bribes at a local business park. Last year the Department of Justice indicted 70 current and former employees of the New York City Housing Authority for soliciting cash in exchange for contracts, in what was a record for bribery indictments in a single day.
Charges today are by far the largest source of local revenue for U.S. cities, larger than property taxes and sales taxes combined. Some of these charges and fees are means to avoid state constitutional restrictions on raising official taxes. But many charges, such as for garbage pickup or stormwater fees, function much like taxes in that there is no way for citizens to avoid them.
Government operates businesses under the assumption that it will save consumers or private-sector businesses money. But government is rarely more efficient than private operators, and it often ends up charging higher rates than normal businesses or transferring costs to taxpayers. Stephen Goldsmith, the former mayor of Indianapolis, once proposed the “Yellow Pages test,” which stated that if there were three companies in the phone book providing a service, government should not be in that business.
Today, with an efflorescence of alternatives available online, it should be easier than ever for politicians to find alternatives to the government for providing services. Limiting direct involvement in such services would help the government focus on the things it’s supposed to do, such as public safety, courts, and true public goods. Instead, government is involving itself in ever more services. And we’re all paying for them.