The Costs of Government

Few governmental functions are self-supporting; most are paid for by the taxpayer. The question of the costs therefore is fundamental, particularly in the present depression when it is very difficult to pay the money with which to run the government. No one is in the mood for thinking of the growth of governmental functions when taxes are such a burden and when the costs of government continue on almost the same plane as before the depression. In a business depression, the costs of government remain high while the incomes of citizens fall and a larger percentage of income must be contributed to the government. This has been case in all recent severe business depressions and the complaint of the taxpayer has always been loud on these occasions.

This problem has never been solved. It is very difficult to cut down the total expenses of government as will be seen later from the nature of the payments. Business adjusts more quickly to the business cycle than does agriculture, and perhaps both more quickly than governments. Yet something can doubtless be done toward adjusting government finances to the exigencies created by business cycles. The tax bill of all the governments in the country in 1930 was ten and a quarter billion dollars, perhaps 15 percent of the incomes of the people. Of course, the crucial question is what do we get for our money. We spend about the same amount of money or more on recreation, approximately one-seventh as much on tobacco, and perhaps about one-fifteenth as much on cosmetics. How this money paid to run the government is spent is seen in the chapters on government and taxation. No doubt there is waste, but attempts to cut down have recently led in hundreds of counties and cities to closing the schools for a time and also to cutting down normal relief, such as mothers’ pensions, just when it is most needed. The problem of the extension of the functions of government is then in part a problem of paying for them, which leads inevitably to the question of how this burden shall be distributed among the citizens.

The tax burden was only 6.6 percent of the national income in 1913, or about one-half the proportion it was in 1930. How has this increase come about? One-fourth of it was due to the war; one-fifth of the increase went to education; about one-sixth was for good roads and about one-seventh was for the various services of the municipalities, which are peculiar to great aggregations of people living in localities of high density. It is an interesting question what, if any, of these expenditures which doubled the tax burden we should have been willing to forego. The problem of the amount of taxes is the problem of what we want to spend our money for. The percentage of waste that can be eliminated, as the percentage of increase in efficiency, has not been measured.

The question of who pays the tax ranks with the question of how much tax should be paid. Even when some such principle as payment according to ability is adopted, the measure of ability remains to be determined, as well as the problem of administering the tax. The most noteworthy trend has been the rise of the income tax from 37 million dollars in 1913 to 2,700 million dollars in 1930, and of the inheritance and estate taxes from 26 million to 250 million, the rise of the gasoline tax and decline of the liquor tax. The general property tax still continues to yield nearly 50 per cent of the taxes raised, despite its almost universal condemnation as a tax once adapted to our rural life but which has survived into an era to which it is ill fitted. No doubt the struggle over who shall pay what proportion of thee tax will be raised anew in every fiscal crisis of the future. If the government’s functions should grow very large, this issue will become one of almost overshadowing importance.

Large possibilities of economy are found in the elimination of duplicating or outgrown units and agencies of government, in the adoption of sounder practices in purchasing and other governmental procedures, in the abolition of the graft and spoils system, in the better organization of personnel, and in general in the establishment of efficient public administration. These roads to economy are well understood and may readily be used whenever the will to do so is sufficiently developed. It must be recognized, however, that there are many fixed charges which are not readily reducible and contractual payments which must be met, and that extraordinary expenditures are necessitated in periods of grave unemployment. Less readily measurable, but equally important savings may be made for the community in such items as the reduction of the law’s delay in the administration of civil justice, in the prevention of criminality and racketeering, in sounder policies of dealing with the defective and the delinquent, and still more broadly in larger planning and keener foresight in dealing with the terrible losses arising from the tragic tension of war and economic depression, with their heavy burdens on the taxpayer. In this range of opportunities material economies may be made without crippling essential public services, and without overburdening the community from which governmental contributions must come.

Source: Recent Social Trends in the United States, an examination of the social state of the United States at the end of the 1920s undertaken at the direction of President Herbert Hoover.