Obstacle to Deficit Cutting: A Nation on Entitlements

The US Treasury recently reported that the government ran a $1.26 trillion deficit for the first 11 months of the fiscal year, on pace to be the second-biggest on record. Efforts to tame America's ballooning budget deficit could soon confront a daunting reality: Nearly half of all Americans live in a household in which someone receives government benefits, more than at any time in history, says the Wall Street Journal.

At the same time, the fraction of American households not paying federal income taxes has also grown – to an estimated 45 per cent in 2010, up from 39 per cent five years ago, according to the Tax Policy Center.

A little more than half don't earn enough to be taxed; the rest take so many credits and deductions they don't owe anything.

Most still get hit with Medicare and Social Security payroll taxes, but 13 per cent of all U.S. households pay neither federal income nor payroll taxes.

As recently as the early 1980s, about 30 per cent of Americans lived in households in which an individual was receiving Social Security, subsidised housing, jobless benefits or other government-provided benefits. By the third quarter of 2008, 44 per cent were, according to the most recent Census Bureau data. That number has undoubtedly gone up, as the recession has hammered incomes, says the Journal.

Some 41.3 million people were on food stamps as of June 2010, for instance, up 45 per cent from June 2008.

With unemployment high and federal jobless benefits now available for up to 99 weeks, 9.7 million unemployed workers were receiving checks in late August 2010, more than twice as many as the 4.2 million in August 2008.

Still more Americans – 19 million by 2019, according to the Congressional Budget Office – will get federal aid to buy health insurance when legislation passed this year is implemented.

Despite occasional bouts of belt-tightening in Washington and bursts of discussion about restraining big government, the trend toward more Americans receiving government benefits has continued for more than 70 years – and shows no sign of abating, says the Journal.

Source: Sara Murray, Obstacle to Deficit Cutting: A Nation on Entitlements, Wall Street Journal, September 14, 2010.

For text: http://online.wsj.com/article/SB10001424052748703791804575439732358241708.html?mod=googlenews_wsj

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 21 September 2010