Government Payments Become Fastest Growing Source of Income: Report

Payments from the government have become the fastest-growing source of income for Americans, according to a new study.
Transfer payment programs include Medicare, Medicaid, Social Security, unemployment and disability, food stamps, and veterans’ benefits.
Transfer payments increased from 8 percent of U.S. total income in 1970 to 18 percent today, the report states, crowding out private income from wages and investments.
“There is a large range of experiences driving transfer reliance across communities,” Benjamin Glasner, an EIG economist and one of the report’s authors, told The Epoch Times. “But it’s unavoidable to look at the fact that transfer reliance has grown rapidly across the country, and it’s something we need to deal with.”
“The primary driver that we found in our report is demographic related, specifically the fact that the country has aged so rapidly,” Glasner said. “And the transfer programs that target that aging population also have grown significantly more expensive over time.”
Of all government assistance payments in 2022, 56 percent went to the elderly, mostly for Medicare, according to the EIG report. Health care costs were a major factor, both because more Americans qualified for Medicare and Medicaid and because the cost of medical treatment rose significantly.
Some analysts say this growing dependence on government comes at the cost of personal autonomy and responsibility.
“The surge in transfer payments during the past 50 years is just one manifestation of the trend to politicize and tangle up all aspects of Americans’ lives with the government,” Steve Hanke, professor of Applied Economics at Johns Hopkins University and a member of the board of directors of the Federal Fiscal Sustainability Foundation, told The Epoch Times. “It results because of politicians’ inevitable attraction to buy votes by promising ‘free lunches,’ and the fact that politicians don’t face statutory or constitutional spending constraints.”
To illustrate the extent of the shift to government dependence, EIG created maps showing the percentage of income that came from transfer payments, broken down by county, over time.
In 1970, only about 1 percent of all U.S. counties reported that government transfers made up more than 25 percent of total income in their county; by 2022, more than half of U.S. counties reported dependence at that level.
While countries such as Japan have had their populations fall because of low fertility, the United States has experienced continuous population growth. But this is largely because of immigration rather than native-born Americans having children.
“The increased politicization of life will put a damper on economic prosperity,” Hanke said. “For every dollar taken out of one taxpayer’s pocket and put into another’s, there is a cost, an excess burden.
“This burden is the result of distortions thrown into the economy by imposing a tax, and the administrative costs of levying the tax and of running the government’s transfer payments system.”
“The more you redistribute, the greater will be the drop in total income,” Laffer said in a 2023 interview with The Epoch Times.
Consequently, governments are increasingly caught between a rock and a hard place regarding how to pay for social programs.
Treasury data for the fiscal year 2024, running Oct. 1, 2023, to Sept. 30, show that the interest expense was $896 billion.
The second is raising taxes, he said, “but there’s some risk to that, because overdoing increases in taxation can potentially cut off sources of economic growth, undercutting our actual capacity to deal with this.”
The third and most viable option, Glasner argues, is to increase economic growth and private income. Among the ways to do this, he says, are “investments in research and innovation, better-designed immigration policy, and tax and regulatory policies that foster economic dynamism and increased participation in the workforce.”
While Europe’s social programs provide support payments regardless of need, the U.S. transfer systems are more selective and thus less costly while delivering more money to the poorest.
“Europe’s welfare states are dominated by costly publicly funded ‘social insurance’ programs, which attempt to fully support middle-class lifestyles through periods of unemployment, ill health, disability, or retirement,” the report reads. “By contrast, American public entitlement programs are more focused on providing a safety net against poverty, and they more strictly limit eligibility for cash and health care benefits to those who are unable to work.”