Most people seem to believe, as does the always uninformed media, that our governments take as much as 25% or 30% from the wealth produced annually by Americans. And most Americans and the media believe that wealth production is fairly represented by Gross Domestic Product. In his article “How Big Is Government in the United States” Robert Higgs demonstrates how much worse the problem actually is. In that paper he also demonstrates the misuse of the current method of estimating the size of government in the United States. His paper is longer than the following and far better explains the complex issues involved but if in my attempt to cut to the chase I draw conclusions that are in error it is my fault and not his. I encourage you to read the original. A link is provided at the bottom of this page.
Higgs begins by demonstrating the serious flaws in the standard method used by most economists for arriving at the size of government relative to Gross Domestic Product. Among other problems GDP includes capital depreciation and other costs that are not final goods and services.
A more accurate view is produced by comparing all government spending—local, state and federal—which is annually taken from the taxpayer in one form or another—with the amount of after tax wealth retained by the taxpayer for personal consumption. Those are terms we can all relate to as a way of judging the size of government. In that case government spending is almost 51% of the amount left to the taxpayer for personal consumption spending.
In other words government , including state, local and federal, is taking an amount equal to half of all wealth produced by its citizens. Much of that amount is used to buy the support and votes of the warfare, welfare and government employee industries. Yes, some is returned in the form of social security, medicare, etc., but that is included in the personal income on which we pay taxes.
Unfortunately, if we are trying to estimate the size of government, that is only the beginning.
Federal, state and local regulations eat away at every business and every individual far more than most people realize. Best annual estimates by the economist Clyde Wayne Crews Jr. of the Competitive Enterprise Institute indicate that the cost of compliance with federal regulations alone takes another 13% of our remaining earnings. Local and state regulations add still more. In some states, counties and cities regulations may add more than federal regulations.
Now consider that every business must pass on to its customers all of its costs, not only the taxes and fees paid to various governments, but the costs of conforming to government regulations. Every product and service we buy contains infuriatingly stupid regulatory compliance costs we always pay but never see.
Politicians and their cronies use government tax and regulatory structure to constantly prey on the wealth producer. A comparison might be made with mob protection rackets.
So how big is government? It is a parasite almost equal in size to its host. And it grows larger every year. The economy cannot grow in the presence of that parasite.
See Robert Higgs paper https://www.independent.org/pdf/tir/tir_20_02_07_higgs.pdf