Hmmm, well, yes, and I don't know why you don't see it yourself. The people on government payroll are doing something for their income (and they are taxed like anyone else, but to avoid routing money around it may be deducted before they get paid... Here in Spain it's not the case, they pay income tax like anyone else). Not everything is a product that is sold: education would be the simplest and more down-to-Earth example.