Post-Depression first: Americans get more money from government than they give back
For the first time since the 1930s, households are paying less in personal taxes than state and federal governments are paying out through transfer programs like Social Security.
By Mark Trumbull | Staff writer/ November 9, 2009 edition
For the first time since the 1930s, personal taxes paid by Americans aren’t enough to cover the payments that the government sends out through transfer programs like Social Security and food stamps.
The trend, visible in government data on personal incomes, reflects both a deep recession and government efforts to prop up the economy.
A sagging economy has dragged down America’s total personal income, causing tax revenues to plunge. It also has added to the ranks of people who qualify for unemployment insurance and other safety-net programs. That’s not an unusual pattern during recessions, but the impact has been deeper this time.
In addition, the $787 billion economic stimulus program, launched earlier this year, has given Americans new tax cuts and expanded transfer programs.
The result: In the second quarter of 2009, Americans were getting $79.8 billion more in transfers than they were paying to government, on an annualized basis. That’s about $260 per US resident. The amount was similar (a bit smaller) in the third quarter.
This recession-related pattern is an amplification of a larger trend that Americans are very familiar with: federal budget deficits. For years, tax revenues haven’t covered all government spending. But usually households pay enough in taxes (income taxes and payroll taxes dedicated to Social Security and Medicare) to at least cover what’s paid back to households in transfer programs.
Usually, a substantial sum is left over to pay for some of the government’s other spending.
Not lately.
“We’ve actually seen payroll tax receipts decline at the federal level,” says Gus Faucher, a senior economist at Moody’s Economy.com in West Chester, Pa. “That’s really quite unprecedented.”
The stimulus programs are having a big impact on the flow of money between households and government, he says. For example, Social Security recipients got a one-time payment of $250, which showed up in the second quarter. And the stimulus included President Obama’s “make work pay” tax cut, which gave millions of workers an extra $400 in spending money.
But an equally big factor, Mr. Faucher says, may be what economists call the economy’s “automatic stabilizers” that are built into fiscal policy. This includes the tendency that people will owe smaller tax payments when the economy is in the doldrums than when it is booming. (They have smaller bonuses and lower capital gains from investments.) Safety-net programs, moreover, predictably kick into higher gear in recession. Spending on unemployment insurance was soaring even before Congress voted on the stimulus, with its extended jobless benefits.
How long will households be receiving more from government than they’re paying in? It depends how the economy performs.
In the third quarter, gross domestic product went up. If that continues, it should help to push incomes up. That, in turn, should help tax revenues revive. Rising incomes should also help the private sector create jobs, easing the burden on government welfare programs.
In the much more severe economic conditions of the 1930s, the economy saw at least six straight years in which net government transfers exceeded tax receipts. This time, it may be just a few quarters.
“It doesn’t necessarily have to hurt the [federal] budget picture in the long run,” Faucher says. The government’s real fiscal problem, he says, is that budgets aren’t even balancing during good years for the economy.
The numbers used in this story come from the Bureau of Economic Analysis, which publishes data on personal income, taxes, and transfer payments.
In the second and third quarters, Americans were paying taxes at an annual rate of about $2 trillion a year.
That includes state and federal income taxes, and it includes the payroll taxes paid by workers directly or indirectly (through employer contributions). The tax revenues were down significantly from a year before, when they were running at an annual pace above $2.3 trillion.
Meanwhile, transfer payments from the government to individuals have gone from less than $2 trillion in 2008 to more than $2 trillion this year. These include social insurance programs such as Medicare and also safety-net programs for the poor and unemployed – such as jobless benefits and food stamps.
The accompanying chart shows the 62 years for which quarterly data are available.
The line showing tax payments minus net transfers to individuals dips below zero this year because Americans are paying less than 9 percent of their income in taxes (usually it’s 10 to 12 percent) and because net transfer payments have jumped to more than 9 percent of income.
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Comments
2. Mark Peterson | 11.10.09
This is exactly what politicians want: People are more dependent than ever on them. It’s the kind of cynical approach that keeps incumbents in office. And, it’s disgusting that we’ve become a nation of personally irresponsible.
3. Kurt A Chappell | 11.10.09
Have we ever thoght of a nat. Lottery print a whole lot of tickits someone
always wins.Tax the proceds states do it way the the feds. Take care have
a nice day.
4. The Truth | 11.10.09
What this article doesn’t take into account are the hidden costs that government imposes on us. How about lost wages due to a gov. created influx of foreign labor thanks to programs such as the H1 worker visa that allows companies to import workers from overseas by claiming they can’t find qualified worker over here. The guidelines for meeting this program are a joke; there are lawfirms dedicated to helping skirt the system. Oh, and let’s not forget politicians like Nancy Pelosi who specialize in trying to bring more foreigners and/or ignore illegals coming here to undercut our wages.
How about the money the government costs us by forcing us to buy things we may not want or forcing us to buy things at higher prices? Prescription drugs are a great example here. Drug companies charge foreign countries less than they do we the taxpayers who funded the drug research. Yet our gov. forbids us from buying foreign drugs, in the interest of safety (read: big pharmaceutical donor profits) of course. And everyone will be forced to buy healthcare if Obama has his way. I think buying healthcare is a good idea, but that doesn’t give the gov. the right to force everyone to buy it and sure as hell don’t want them running it!
Finally, I’d like to dispute the idea that Americans are getting more back than they put in even without the indirect costs I have named. When one thinks of “Americans”, that tends to mean Americans in general, not just certain groups. Those that are collecting right now are generally those who are unemployed, on welfare, and those in charge of big businesses and special interests. I don’t blame the unemployed; it’s not like they asked to lose their jobs, but they are a group that is getting more back than is paid in nonetheless. The rest of us are still footing the bill.
The author mentions the $787 billion stimulus package as an example of how Americans are getting money back from the gov. than they put in. Have we forgotten just where most of that money ended up going? Big corporations! Places like Fannie and Freddie. Auto plants, banks, financial centers, etc. Entities that, contrary to the beliefs of some, did not create a significant amount of permenant, good paying jobs with the money that were supposed to benefit us. Now some of those companies that were crying bankruptcy only a year ago are now yelling “Big bonuses!” instead. I find it impossible to believe that these companies made such an enormous turn around in one year during such economically troubled times. So, in the interest of accuracy, perhaps the author should change the wording to “A few select groups of Americans are getting more back than they pay into the tax system.” Thank you for reading this.
5. Dave Harpe | 11.10.09
Isn’t it time to rethink the tax cuts for the rich handed out by Reagan, the Bushes, and even Clinton? These cuts were supposed to stimulate the economy by giving the wealthy even more money to invest in job creating industries. As our economy crumbles, we are still waiting for them to do that.
Oh! That’s right! They did, but the jobs are in China, and they moved many of our existing jobs there as well.
This government will never be able to balance its budget by taxing people who don’t have money. Let’s shift the tax burden back where it belongs. It should be obvious by now that cutting taxes for the rich makes things worse, not better, for the rest of us.
6. THE TRUTH AGREER | 11.10.09
Thank you Mr Truth, for the comments on NOV.10.09. These truths I have been preaching also. I can assure you, as a night shift working, tax paying, white middle-aged American male, I am not getting back more than I pay into gov.
If we would stop sending millions to other countries in aid, the budget for those in this country whom are getting more than they pay into the gov, could be made more even. Pretty simple solution that will never be realized.
It’s known we have to pay other countries to do as we say, but I recommend ignoring those countries and only having our country to restore.
7. Truth to the Truthyness Speakers | 11.12.09
Hey Truth and Truth Agreer
you seem to forget that our country’s spending (including personal spending) has largely been bankrolled by the wealth of other countries. It’s called negative trade balance. It’s time for us to pay the piper. This means either we let our dollar severely devalue (which I think is what will happen) thereby lowering our standard of living and purchasing power, or we raise taxes to finally pay for all those neat, little things we wanted to buy (that would include conducting two wars that we all wanted and the massive tax cuts we all wanted), things we thought we could afford but now, as it turns out, realize we could not. Borrowing more from other countries in perpetuity is not an option. So, what is your truth?
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1. Pata | 11.10.09
There is an editing error in the article. Sorry, haven’t figured out how to paste with this iTouch yet.