Government Transfer Payments in the US: It’s All About Health Care
There’s been a rather silly news item floating around the internets and business press today about the role of government in the US economy. Here’s an example from the Investors Business Daily:
Is America Becoming A Welfare Nation?
More than one-third of all wages and salaries in this country are actually government handouts. We should be alarmed that we’ve become a nation of dependents.
Using data mined from the Bureau of Economic Analysis, TrimTabs Investment Research has found that 35% of wages and salaries this year will be in the form of a government payment. That’s up sharply from 2000, when it was 21%, which is more than double the rate — 10% — of 1960.
The payouts are primarily Social Security and Medicare benefits, and unemployment checks. But they are not limited to those programs.
In any case, we’re seeing before us a disturbing trend. A society can’t survive moving in this direction.
Sigh. Where to begin.
First of all, just to set the record straight: the press is reporting the numbers wrong. The true figure, according to the BEA data, is that about 18% of personal income in 2010 was in the form of transfer payments from the government. Meanwhile, exactly zero percent of wages and salaries were in the form of transfer payments, because wages and salaries were, well, wages and salaries. I suspect that many people are conflating “wages and salaries” with “personal income” as they report this statistic. But there’s actually a big difference, and wages and salaries actually make up only a bit more than half of personal income in the US.
Much more importantly, one must realize that of course transfer payments were higher than usual in 2010 – we were emerging from the deepest recession in 75 years. Transfer payments are crucial automatic stabilizers for the economy, and comprise our society’s safety net. They have been operating exactly as they’re supposed to, with payments rising during a recession to make up for the fall in other types of income. When you have the deepest recession since the invention of transfer payments, as we did in 2008-09, then of course you would expect to find them rise to their highest levels ever.
Finally, the alarming statistics cited in such articles are really just due to one, and only one, phenomenon: the incredible and seemingly unstoppable rise in health care costs in the US.
The blue line in the following picture shows transfer payments as a percent of total personal income. The red line shows transfer payments excluding Medicare and Medicaid.
With the exception of health care costs, there’s really no trend to see in this data at all. Really, it’s all about health care costs. Again. Still.
This is ridiculous. This isn’t even close to accurate. What is wrong with these people? Nancy Ortiz
Don’t ignore the discretionary spending elephant in the room.
Discretionary spending and the wars’ part are more root cause of the US G increasing to drive economic activity than SS, M+M. Also the great recession and the harm to wage levels done by the corporatists ruining the US.
If this imples the need for cutting US G impact on economic acticity, then……
Cutting discretionary harms fewer people than cutting SS, M+M. But those largely political outlays are linked to the wealthy making the profits and their MSM power.
If they are worried about the US government driving too much economic activity, in 2010 38% of US government outlays was discretionary, and most of that was contracted work from the private sector, which corporate welfare companies skim G&A, overhead and profits.
The US does have a much too large of a corporate welfare program. The profits they yield have to be screened through “work” done by real people. So I suggest about half the ‘payroll’ from Uncle Sam is due to the discretionary side about equal to SS and M+M.
The comparisons are 2000, and 1960.
SS 40 and 50 years later is huge compared to 1960, and there was IIRC a recession going on, while military outlays were high it was a trough between the peak of Korea and Vietnam. I think 10% of all government “contracts” and other impacts is a bit low, but the military was all draftees and low waged, and the military industrial complex did not have hugely inflated make work and distortive wages, as today (although around then Seymour Melman was seeing some). 1960 corporate welfare was small potatoes.
2000 was again a trough in military and governemtn discretionary spending, lowest military in constant dollars since the post Vietnam period and Jimmy Carter, in military spending and defict reduction, years before Bush Cheney broke the bank. SS is up because of demographics etc. The economy was booming, so private sector payrolls were larger, corporatists’ impacts had not become so large.
Today, SS is way up the boomers are taking and folks are living longer. The war and other discretionary have grown relative to entitlements (during Clinton entitlements ran about 35% IIRC) and those wages from discretionary are more distortive because the more payroll the more profit to skim.
But I suspect a significant difference between 1960/2000 and 2010 or whatever is the depth of the recession and the huge drag on private sector wages from out sourcing etc.
I would be less than worried abou SS and M+M and more concerned about the drags on the productive economy, that is reduce distortions from the military industrial complex and the related corporate welfare in discretionary.
Then maybe raise some revenues through tariffs and encouraging wages in the US.
Discretionary spending is the big issue, but it aids a few connected so start tossing around SS and M+M.
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Hmmm… not completely accurate that “With the exception of health care costs, there’s really no trend to see in this data at all”. The costs (blue line) has jumped up from below 10% to touch 12% (more than 20% increase in the last 2 to 3 years). Though, I agree, the jump is more accentuated if you include Healthcare costs.
So, what explains that more than 20% jump?
These guys really shouldn’t attempt to use data. it’s not their best game.
Reading the post again will help find the answer I believe.
suvikas
as Rdan suggests, read the post.
you are looking at a 2%… not 20%… rise caused by the recession.
the important reason its 2% and not 20% is that if transfer payments before the recession had been 1% of income, and 10% unemployment had caused them to rise 2%, you’d be shouting about a 100% increase,
you may know the difference… most people don’t… and the Big LIars use tricks like that to mislead them.
amateur
on the contrary… using data to mislead IS their game.
you’ve heard of lies, damn lies, and statistics. meet the damn liars.
It is important to recognize that the 10% of income that is the baseline for “transfer payments” includes Social Security, which is not a transfer payment, except in the sense that it is a transfer from your young self to your old self.
Social Security takes your basic retirement savings and protects it from inflation (and other things) using pay as you go financing… which finesses the inflation problem and provides a real interest of about 2% on average plus an insurance payment where needed. This is exactly the same as if you put the money in the bank… except that it is protected from loss.
If you put the money in a commercial bank and then take it out forty years later, with the interest, the money you take out comes from money that other people are putting in at that time. Does that make your savings account a transfer payment?
a transfer payment is when the government takes money from people who have it and gives it to some one else without regard for what the first person will get back, or what the second person paid in.
that’s a whole different thing. and you need to be clear about it.
An “argument” is often “valid”, but not “sound”.
Sounds really good as long as you don’t check the “premises”. To accept false “premises” one must be persuaded,: extorted, exhorted, bribed, or hate someone.
You see a lot of not “sound” argument from these kind of uses of fallacious facts to mislead.
We need to be seekers, not ideologues.
Hey this is fun. Just take any two unrelated numbers from the NIPA Tables, compute the ratio, and make a totally missleading statement.
OK, it’s my turn:
Did you know 25% of all wages and salaries were corporate profits in 2010? LOL!
Sadowski
maybe you could help me with this: 38%..on its way down to 32%.. of GDP is “wages subject to SS tax”… i guess that means wages below 106k.
Where does the rest of it go?
In 2010Q3 GDP went to:
Depreciation-13%
Statistical Discrepancy between GDP and NI-1%
Wages and Salaries-44%
Benefits-7%
Proprietorships-7%
Corporate Profits-11%
Rent-2%
Interest-5%
Taxes on Production and Imports-7%
Business Current Transfer Payments (net)-2%
Sadowski
if you can put up with me for a minute..
Does “depreciation” show up as income to someone… like the people who manufactured whatever it is that is depreciating?
are “benefits” income that is not counted as wages… like employer paid insurance… that becomes income to someone else… and if so, is it included in “wages, etc”?
are “taxes” part of gross domestic PRODUCT?
what is a business… transfer payment?
i think i understand that “product” is only counted once… so that if i pay a 100 dollars for steel, and manufacture something out of the steel… my “product” is only the difference between my cost and my price. but i have a hard time keeping track of this when some of my cost is “depreciation” and “taxes”.
i am not opposed to the idea that my taxes buy government services which may count as “product.”
i have looked at a few economics books about this, and they seem confused to me. but then they make the rules.
that is, are the benefits my employer pays to me counted as wages to the guy at the insurance company? or the doctor?
Depreciation refers to decrease in the economic value of the physical capital. It is part of GDP but not part of NNI.
Benefits count as personal income but not as wages or salaries.
Taxes on production and imports consists of Federal excise taxes and customs duties, state and local sales taxes, property taxes (including residential real estate taxes), motor vehicle licenses, severance taxes, and special assessments. Technically they are part of NNI, and there is a relationship between NNI and GDP.Business tranfer payments are gifts or subsidies made to households. in practice this usually means the writing off of debts.I hope that helps.
Sadowski
Thanks. I’ll have to think about it.
Depreciation is the big mystery. I think because one of the texts I read got it wrong, and the others don’t really talk about it.
Sadowski
thanks. i’ll have to think about it.
Wages below 106k are 38% of GDP and falling. Where does the rest of it go?