Growing dependency on Federal income

The New York Times yesterday ran a long article on benefit programs administered by the Federal government. Naturally, they couldn’t just show the data, but told a political-motivated story around it and hence the title “Even Critics of Safety Net Increasingly Depend on It“.

To me, the most remarkable thing is the time-series data that show how the share of Federal household income from government benefits programs has grown over time, especially recently.

1969: 7.8%

1979: 11.2%

1989: 11.5%

1999: 12.6%

2009: 17.6%

Federal benefits as percent household income by year

They don’t really go into this data too much, but the storyline seems to be that everything was fine beforehand and the recent jump is largely a function of the recession and that it does not relate to any permanent underlying changes in programs or economic structure. Count me as skeptical of that – I highly doubt these income levels will drop back to 12%’ish range that existed in the 1990’s and 2000’s.

They have a great chart which shows the distribution of this federal income by region across the country: The Geography of Government Benefits. The print version of this is much better because it uses different colors to highlight the steep regional variations – the online version is shades of brown.

The second thing that is remarkable about the data they use is how rapidly the beneficiaries of Federal aid programs has shifted from the poor to the middle class. They don’t have these graphics on the web that I can find, but the key learning for me is that benefits going to the poor (defined as the lowest quintile) has plummeted from 54% in 1979 to 36% in 2007. Wow!

Benefits to second lowest quintile are pretty stable at 18% – 22%. Benefits to the top 3 quintiles (top 60%) have all grown significantly – even the top quintile.

At least to my ear, Democrats seem mostly to argue that more and more money must be spent to increase benefits to the poorest among us – that there remain many, many severely disadvantaged folks that need help. This is a worthy goal, but the reality of the spending points to a different outcome – or maybe the claim is shifting: now the idea is that everyone (the 99%) is disadvantaged except the rich. We all need and deserve help.

The third remarkable set of stats concern the percentage of households that receive Federal entitlement benefits.

1998 – 37.7%

2006 – 44.5%

2009 – 48.5%

We keep this pace up for another twenty years and we’re looking at 65% – 70% percent of households receiving Federal money by 2030. No idea how one funds a social structure like that – lots of borrowing, probably.

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In Washington, the Democrats seem intent on continuing these trends indefinitely – perhaps even to accelerate them. I see no appetite from them to even moderate the cost curve, let alone to reverse it in some way. On occasion, there is lip service about restraint, but no passion whatsoever. They are passionate mostly about two things: more benefits for everyone and taxing the rich. They also care a lot about the environment, ensuring more individual rights, and ensuring we are all safe from corporations.

One thing I don’t understand about their program is that even if we taxed the rich into oblivion, that wouldn’t cover the cost of these programs today, let alone in the future (assuming it didn’t destroy the economy in the process). So even in the best case, the majority of the money to cover entitlements has to be borrowed. This approach might feel good for a while, but I don’t see how it can play out with a happy ending . Unlike Greece, there is nobody out there to bail us out – we are simply too large, even for China.

Republicans are at least trying to shift the dynamic – even as they are called heartless and uncaring by the other side. I give them kudos (and my vote) for that.

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