Most Americans have a poor understanding of their own political system, particularly with regards to the nature and cost of social policies. In fact, most people don’t even know whether or not they’re direct beneficiaries of the very spending they rally against. Several articles I’ve recently read have highlighted this interesting irony, while shinning light on just how much the government spends and for whom.
The first comes from Slate columnist Matthew Yglesias, in his piece, “How Blue American Subsidizes Red America.” He finds that the typical conservative state is generally more dependent on federal programs than the average liberal one, despite the former’s generally hostility to the national government. You can see a visual representation of this below:
Regardless of how it is measured, the overall picture is the same: on average, aid is transferred from high-income and politically underrepresented parts of the country, to low-income and overrepresented ones (GOP-dominated states tend to have a disproportionate presence in the Senate). Yglesias doesn’t think this is evidence of any hypocrisy on the part of conservative voters or their representatives, but there’s more on that later. He shares two assessments based on this data:
One is that high-income people living in low-income states are generally very conservative in their political ideology but probably benefit more from federal income support programs more than they realize. If you own fast food franchises in the Nashville area, for example, you’re going to form a self-perception as a self-reliant businessman but the existence of Medicaid and the Earned Income Tax Credit are helping to ensure that your customers have adequate income to sometimes eat at your Taco Bell. These chains of dependency snake even longer. If you sell luxury cars in Florida, many of your customers are probably medical professionals who are earning high incomes because other people have Medicare benefits. The aggregate geographic transfer patterns, in other words, do make a real difference to the economic life of the nation. The existence of transfer payments props up the entire local economies of low-income, low-productivity parts of the country.
The other point is that the fact that we don’t think of the issues in this way is important to making the overall country work. Voters, whether they’re liberal or conservative, don’t think about Boston subsidizing Louisiana. They think about high-income people (a disproportionately large number of whom happen to live in the Boston area) subsidizing low-income people (a disproportionately large number of whom happen to live in Louisiana) and debate the issues on broad ideological grounds. Absent that commitment to broad ideological thinking we’d be in roughly the situation that the European Union is currently in, with Boston-area people happy to participate in a joint economic undertaking with Louisiana to some extent but horrified by the notion that their hard work should subsidize Bayou indolence. You would then have the question of to what extent can people simply leave the low-wage, low-productivity places and move to the more prosperous ones. In the European case you’d find that the logistics of language make it hard for a middle class Greek person to get a good job in Finland, while in the United States severe zoning makes net migration to the highest-income cities impossible.
In other words, people are missing the bigger picture – it’s not entirely obvious who the aid goes to and how it’s all interconnected. People can easily view taxation as theft, but have a harder time seeing government assistance as putting more disposable income in people’s pockets, and thus driving the demand on which our economy depends on (especially on the local or state level).
You can read more about this at the Incidental Economist blog, from where Yglesias drew his data. Another blog found that as of 2010, seven out of ten states with the highest per capita income voted Democrat over the past five presidential elections, while, conversely, seven out of the bottom ten states in this regard voted Republican.
Overall, most of the wealthiest states in terms of per capita income tended to be solidly Democratic in their affiliation. However, we shouldn’t make too many assumptions – per capita income doesn’t capture the actual distribution of wealth and whether most residents of these states are actually well off. It also doesn’t reveal whether these states are facing any mounting long-term socioeconomic problems.
Granted, various indexes show that comparatively speaking, conservative states have higher rates of poverty, crime, high-school dropouts, and other measures of social dysfunction. There are exceptions of course, but that’s the average picture. The significance of that correlation will be left up for you to decide.
The next two articles come from Mother Jones columnist Kevin Drum, and explore who benefits from federal aid and how much do we spend on the unemployed poor. They’re pretty similar in their subject matter, so I’ve combined their conclusions.
The first article takes its data from a recent study by the nonpartisan Center on Budget and Policy Priorities (CBPP), which showed that the amount of government benefits that go to able-bodied workers is about 9% of our federal budget. Furthermore, one of the authors of the study, Arloc Sherman, noted that there was a lot of overlap between various social policies: Medicaid, for example, is generally seen as a program for the poor, but most of it goes to the elderly and the disabled (many of whom live in poverty).
So what percent of each program goes to the elderly, disabled, or working poor? The bulk of both Medicare and Social Security goes to the elderly and most of the balance goes to the disabled. The Earned Income Tax Credit goes almost entirely to the working poor…[83%] of Medicaid goes to the elderly, disabled, or working poor. [79%] percent of school lunches. [69%] percent of unemployment compensation. [64%] percent of SNAP (food stamps). Even TANF, the classic “welfare” program, clocks in at 46 percent—and it’s a very small program. The other 54 percent only amounts to about $6 billion, a minuscule fraction of federal benefits, and ever since the 1996 welfare reform bill those benefits have been temporary anyway. It’s not really possible to become dependent on TANF any longer.
Below is a visual representation of the different kind of recipients and their fraction of each federal program.
Overall, only about 9 percent of government benefits go to those who could be thought of as able-bodied workers who either can’t or won’t find a job. And as the study says:
Moreover, the vast bulk of that 9 percent goes for medical care, unemployment insurance benefits (which individuals must have a significant work history to receive), Social Security survivor benefits for the children and spouses of deceased workers, and Social Security benefits for retirees between ages 62 and 64. Seven out of the 9 percentage points go for one of these four purposes.
Sherman adds this:
Another point: Many of those who decry the growth of entitlement spending seem to forget the most basic of all facts about it: it continues to be driven overwhelmingly by the twin engines of an aging population and the rising cost of medical care. Neither of which has much to do with dependency among the working-age population.
This is especially true for medical care, I think. We spend a fair amount of money on health care services for the poor, but even theoretically that does nothing to make them less likely to work. They still need money for everything else, after all. All it does is provide them with a bare minimum of decent health care. We can afford that, can’t we?
In other words, the widespread perception that there are people who actually live off of “welfare” is false. You can always find anecdotes that suggest otherwise, but on the whole, it’s impossible to be dependent, let alone live comfortably, on these federal programs alone. Even accounting for additional state aid, which is being increasingly curtailed, you’d still live in considerable poverty. The welfare queen stereotype is a myth.
That covers the elderly, disabled, and working class, so what about the non-working poor? How much is spent on them?
It comes to about $235 billion, the bulk of which is SNAP (formerly food stamps) and about one-third of Medicaid. That’s 12 percent of all federal welfare spending and about 6 percent of the whole federal budget. Once you account for the fact that some of these program dollars go to the working poor, you end up with CBPP’s estimate of 10 percent, or about 5 percent of the whole federal budget.
Is that too much? I guess you have to decide for yourself. But I’ll bet most people think we spend a lot more than 5 percent of the federal budget on this stuff. They might be surprised to know the real numbers. The CBPP’s chart is below, with spending on the nonworking poor highlighted.
Indeed, considering that most Americans believe we spend 25% of our budget on foreign aid – the real amount if 1% – I’d wager a good number of people think we give the same amount, if not more, to loafers and lowlifes. Not all poor people are unfortunates trying to make an honest buck, but nor are they parasites living gleefully off the unsuspecting taxpayer. Even if they wanted to, they couldn’t – our safety net keeps them barely above water, at best.
This leads to the final installment of this post: a long but very insightful New York Times piece that explores the ambivalence that federal aid beneficiaries have towards their dependence. There are several interviews with various families who share their confliction with government spending; you can read most of the accounts for yourself, since it would take up too much space to do so here. The article also shows the latest trend of social spending: that’s it’s increasingly headed toward middle-class families that have suffered enough to qualify.
Older people get most of the benefits, primarily through Social Security and Medicare, but aid for the rest of the population has increased about as quickly through programs for the disabled, the unemployed, veterans and children.
The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits.
A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007, according to a Congressional Budget Office analysis published last year.
And as more middle-class families like the Gulbransons land in the safety net in Chisago and similar communities, anger at the government has increased alongside. Many people say they are angry because the government is wasting money and giving money to people who do not deserve it. But more than that, they say they want to reduce the role of government in their own lives. They are frustrated that they need help, feel guilty for taking it and resent the government for providing it. They say they want less help for themselves; less help in caring for relatives; less assistance when they reach old age.
Overall, it seems that people feel guilty relying on taxpayer money, to the extent that they vote for candidates and policies that seek to put an end to the very programs they’re relying on. These people are far from the willing welfare spongers of popular imagination. They need the money, but they don’t want to have the need for it.
The problem by now is familiar to most. Politicians have expanded the safety net without a commensurate increase in revenues, a primary reason for the government’s annual deficits and mushrooming debt. In 2000, federal and state governments spent about 37 cents on the safety net from every dollar they collected in revenue, according to a New York Times analysis. A decade later, after one Medicare expansion, two recessions and three rounds of tax cuts, spending on the safety net consumed nearly 66 cents of every dollar of revenue.
The recent recession increased dependence on government, and stronger economic growth would reduce demand for programs like unemployment benefits. But the long-term trend is clear. Over the next 25 years, as the population ages and medical costs climb, the budget office projects that benefits programs will grow faster than any other part of government, driving the federal debt to dangerous heights.
Americans are divided about the way forward. Seventy percent of respondents to a recent New York Times poll said the government should raise taxes. Fifty-six percent supported cuts in Medicare and Social Security. Forty-four percent favored both.
Columnist Paul Krugman points out that a majority of Americans don’t even realize that these social programs are government-funded and operated. Even those who are aware become uncertain when confronted about their anti-federal position:
But the reality of life here is that Mr. Gulbranson and many of his neighbors continue to take as much help from the government as they can get. When pressed to choose between paying more and taking less, many people interviewed here hemmed and hawed and said they could not decide. Some were reduced to tears. It is much easier to promise future restraint than to deny present needs.
Especially when said needs are growing, even among the middle-class:
Almost half of all Americans lived in households that received government benefits in 2010, according to the Census Bureau. The share climbed from 37.7 percent in 1998 to 44.5 percent in 2006, before the recession, to 48.5 percent in 2010.
The trend reflects the expansion of the safety net. When the earned-income credit was introduced in 1975, eligibility was limited to households making the current equivalent of up to $26,997. In 2010, it was available to families making up to $49,317. The maximum payout, meanwhile, quadrupled on an inflation-adjusted basis.
It also reflects the deterioration of the middle class. Chisago boomed and prospered for decades as working families packed new subdivisions along Interstate 35, which runs up the western edge of the county like a flagpole with its base set firmly in Minneapolis. But recent years have been leaner. Per capita income in Chisago excluding government aid fell 6 percent on an inflation-adjusted basis between 2000 and 2007. Over the next two years, it fell an additional 7 percent. Nationally, per capita income excluding government benefits fell by 3 percent over the same 10 years.
The programs are doing what they were designed to do. The problem is that policymakers didn’t anticipate so many people would require them. No one expects half the country will end up relying on government benefits, and the recession has last far longer, with growth remaining far weaker, than normal.
Few federal programs are more popular than Medicare, which along with Social Security assures a minimum quality of life for older Americans.
None are more central to the nation’s financial problems. The Congressional Budget Office projects that government spending on medical benefits, even taking into account the cost containment measures in the 2010 health care law, will rise 60 percent over the next decade. Then it will start rising even more quickly. The cost of caring for each beneficiary continues to increase, and the government projects that Medicare enrollment will grow by roughly one-third as baby boomers enter old age.
Spending on medical benefits will account for a larger share of the projected increase in the federal budget over the next decade than any other kind of spending except interest payments on the federal debt.
Medicare’s starring role in the nation’s financial problems is not well understood. Only 22 percent of respondents to the New York Times poll correctly identified Medicare as the fastest-growing benefits program. A greater number of respondents, 27 percent, chose programs for the poor. That category, which includes Medicaid, is slightly larger than Medicare today but is projected to add only half as much to federal spending over the next decade.
Medicare’s financial problems are much worse than Social Security’s. A worker earning average wages still pays enough in Social Security taxes to cover the benefits the worker is likely to receive in retirement, according to an analysis by the Urban Institute. Social Security is still running out of money because the program must also support spouses who do not work and workers who earn lower wages. But Medicare’s situation is even more dire because a worker earning average wages still contributes only $1 in Medicare taxes for every $3 in benefits likely to be received in retirement.
A woman who was 45 in 2010, earning $43,500 a year, will pay taxes that will reach a value of $87,000 by the time she retires, assuming the money is invested at an annual interest rate 2 percentage points above inflation, according to the Urban Institute analysis. But on average, the government will then spend $275,000 on her medical care. The average is somewhat lower for men, because women live longer.
Medicare is often described as an insurance program, but its premiums are not nearly high enough. In simple terms, Americans are getting more than they pay for.
In fact, the cost inflation for Medicare, at around 400%, is far lower than that of private insurance, which has climbed to 700%. The private sector is far less efficient in cost-controls, but however comparatively efficient Medicare is, it’s taxpayers funded, so it’s still a drain on our treasury. Finally, the article reinforces something that was established in the beginning of this post:
One of the oldest criticisms of democracy is that the people will inevitably drain the treasury by demanding more spending than taxes. The theory is that citizens who get more than they pay for will vote for politicians who promise to increase spending.
But Dean P. Lacy, a professor of political science at Dartmouth College, has identified a twist on that theme in American politics over the last generation. Support for Republican candidates, who generally promise to cut government spending, has increased since 1980 in states where the federal government spends more than it collects. The greater the dependence, the greater the support for Republican candidates.
Conversely, states that pay more in taxes than they receive in benefits tend to support Democratic candidates. And Professor Lacy found that the pattern could not be explained by demographics or social issues.
Chisago has shifted over 30 years from dependably Democratic to reliably Republican. Support for the Republican presidential candidate has increased relative to the national vote in each election since 1984. Senator John McCain won 55 percent of the vote here in 2008.
Residents say social issues play a role, but in recent years concerns about spending and taxes have predominated.
Given the prevalence of this mentality, it’s difficult to say how would deal with these problems. Clearly, we need to reign in on government spending. But the growing cost of these programs – most of which don’t take up much of the federal budget, except for Medicare and Social Security – is indicative of a larger socioeconomic problem: the rising cost of living coupled with overall stagnation in wages and income for most Americans. It’s not just our attitudes towards the role of government that need to change, but the way our economic system functions. One thing is for certain though, as one interviewed beneficiary noted:
“I’m glad I’m not a politician…We’re all going to complain no matter what they do. Nobody wants to put a noose around their own neck.