Friday, July 13, 2012

What We Spend on the Poor

Over the last 3 years only 9.55 cents of every $1 spent by the federal government is spent on true need based programs, re: Welfare, Food Stamps, Housing Assistance, etc. As a comparison it was 9.33 over the previous 8 years. So the narrative that we are being taxed to the breaking point just to give money to those that don’t work is one that does not match reality.

Even more telling are the demographics of the people receiving these benefits. 41% of people receiving food stamps are from working household, 47% of the people are under 18, 21% were elderly and/or disabled adults, and the average size of the households with children was 3.3 members. The numbers for households receiving TANF (aka Welfare) benefits are similar in nature. Another part of that narrative is people on these assistance programs do just as well or even better than those that work without assistance. The reality is that average combined food stamps and TANF benefits totaled just $123 a week and these benefits are phased out gradually for those get jobs on the lower end of the wage scale. Another misconception is each child in a household increases benefits equally, however benefits drop significantly after the 1st child and almost all states completely cut off additional benefits after the 3rd or 4th child.

So why would a significant portion believe that a majority of their tax dollars go to helping the poor and that a majority of those receiving aid are able bodied but refuse to contribute? Because there is considerable energy and money spent by those that want people to believe this version of events.

Why would they? Because there is straight line from cutting discretionary spending in half to lower taxes for the upper income brackets. And that line goes straight through gutting the middle class as well. As a point of irony, cutting non-defense discretionary spending in half would not have been enough to cover any of the budget deficits since 2001. So, despite the fact the federal revenues as % of GDP during the last decade were at their lowest levels (~17%) since the great depression and during the last 3 years they have been even lower (~15%) there is a beating of the drum that the rich are overburdened with taxes and it is bringing our country down.

While there are certainly ways in which an over burdened upper class can have a negative impact on economic growth, history has shown that we are nowhere near that threshold. The post WWII era was the most prosperous in our nation's history in terms of GDP growth, median income and upward mobility. During that time frame, federal revenues were generally in the 18-20% range, marginal and effective tax rates for people in the top .1% and 1% was more than twice what it is today, and corporate tax revenues as % of GDP were twice what they are today.

Over the last 40 years we have slashed effective tax rates for the upper class, reduced our overall revenue, and repeated cut revenue through corporate welfare. Of course the effective federal tax rates for the middle class have remained that same while payroll, state, local, property, and sales tax rates which are shouldered in greater proportion by the middle and lower classes have increased dramatically. During the same time frame real GDP has slowed, median income has stagnated, mobility has trended downward and our deficits have ballooned. Of course the exception to all of these trends occurred during the nineties where revenues went up, deficits went down, and the economy grew better and healthier than it has any time the last 40 years.

This is not to say that there isn't room for cutting spending in these programs or that we don't have significant long term debt issues. The fundamentals of these debt problems have been around for the last 30-40 years. However, slashing money from programs for the poor don't even some close to solving them. And to be certain the proposals on the table to cut spending by those that propagate these myths that socialists welfare programs are to blame, don't stop at the poor and are aimed directly at the middle class. Meanwhile the other part of the solution for solving our debt issues that involves raising revenue (at least if it impacts the corporate or upper income tax brackets) has been non-negotiable by those that make claims that are counter to the evidence of the last 80 years.


Notes:
Most people have seen statistics the put this much higher, often higher than 50 cents on the dollar and sometimes as high as 75 cents of all spending. So what are these numbers based on.
  • They include the social insurance programs Social Security, Medicare, and Unemployment (averaging 36 cents during the last 3 years 35 cents during the previous 8 years). Of course what is not mentioned is that these social insurance programs only pay benefits to those people (or their dependents) who paid into the system. This hardly fits the bill of giving money to those that refuse to work since if they hadn't worked they would not be eligible to receive benefits. Now some people receive more than they put in, but would someone whose house was destroyed be considered a free loader for filing a claim even though they've paid less in premiums than the value of their home?
  • They also include veterans benefits (over 3 cents during the last 3 years and about 2.6 during the previous 8). This is a clear no-brainer in terms of having earned those benefits (and more). 
  • Finally there is the Medicaid and CHIP (Childrens Health Insurance Program) family of programs (9 cents during the last 3 years and 8.5 cents during the previous 8). One could argue that this belongs in the main category and would therefore change the opening to be "18.5 cents out of every dollar spent goes to need based programs" which is still nowhere near 50 cents. However a reasonable counter argument is that when someone can't afford to put food on the table is does raise the price of food but those who can't afford medical insurance raise the price of medical insurance for those that can and do pay for it.
The only way to get to 75 cents on the dollar without completely making numbers up is to say that everything that is not national defense or interest payments are welfare. Of course this would include education, medical research, our correctional and judicial system and a whole host of things that a vast majority of Amercians consider to be valuable.


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