Gov’t handouts exceed taxes as percentage of average household income for first time since 1936

posted at 10:12 am on April 18, 2011 by Ed Morrissey

In 2008, American households crossed a line that had last been seen in the Great Depression.  For the first time in 72 years, the percentage of average household income supplied by the government exceeded that of the taxes paid to the government.  Despite the talk of recovery, the trend has actually accelerated ever since, according to James Cooper at The Fiscal Times:

For the first time since the Great Depression, households are receiving more income from the government than they are paying the government in taxes. The combination ofmore cash from various programs, called transfer payments, and lower taxes has been a double-barreled boost to consumers’ buying power, while also blowing a hole in thedeficit. The 1930s offer a cautionary tale: The only other time government income support exceeded taxes paid was from 1931 to 1936. That trend reversed in 1936, after a recovery was underway, and the economy fell back into a second leg of recession during 1937 and 1938.

As then, the pattern now reflects two factors: the severe depth of the 2007-09 recession and the massive fiscal policy response to it. The recession cut deeply into tax payments as more people lost their jobs, and it boosted payments for so-called automatic stabilizers, such as unemployment insurance, that ramp up payments as the economy turns down. Plus, policy actions, including the Recovery Act, boosted payments to households by expanding and extending jobless benefits and creating other income subsidies while extending the Bush-era tax cuts and adding new reductions in income and payroll taxes.

Government transfers of income to households started to overtake personal taxes at the start of 2008, and the gap has been widening. In February, households received more than $2.3 trillion in income support from unemployment benefits, Social Security, disability insurance, Medicare, Medicaid, veterans’ benefits, education assistance and other cash transfers of government funds to individuals. In the same month, households paid $2.2 trillion in income, payroll, and other taxes. The difference was about $150 billion, equivalent to more than 1 percentage point of overall personal income and about four times the amount Republicans and Democrats agreed to cut from government spending through Sept. 30.

This chart is instructive:

We should note a couple of points from these trend lines.  First, the amount of government support to households has steadily increased over the past 70 years.  Up to 1965, that level was around 6%.  Within a decade, it doubled to 12% and then increased on a much gentler slope through the 1980s, 1990s, and through the Bush years.  Clinton-era welfare reform actually reduced it, but only slightly, and only temporarily — and it started trending slightly upward through the Bush 43 administration.  Remember that when people paint the Bush era as some sort of heartless turn from safety-net spending.

On the other hand, look at the tax receipts.  We often hear that taxes are at some sort of historic low, but that’s absurd on its face.  Prior to the crash, taxes took up 20% of household income, about the same level as during the previous 25 years, with the exception of a bubble during the Clinton years.  That level is almost twice what taxes took out of household income during World War II, for instance, and even with the tumble over the last three years, it’s still well above what the government took prior to Medicare’s passage during LBJ’s Great Society.

The clear problem in this chart isn’t that the red line has moved downward into historically low territory; it’s that the blue line has kept moving up into historically high territory.  The long-term solution isn’t to raise taxes, but to wean the American public off of its historic dependence on welfare and social spending.

Update: 1965, not 1065.  That Battle of Hastings sure was a bummer, wasn’t it?

Update II: Reader Jeff D notes that The Fiscal Times report says that the gov’t received $2.2 trillion while paying out $2.3 trillion and that’s simply not possible, and he’s right; those are obviously numbers for a full year.  I presume that the reporter confused the reporting date for the analysis with monthly accounting, but I’ll drop a note to the FT for a clarification.


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I’m guessing the “taxes payed by households” doesn’t include the payroll taxes that employers pay on top of your salary as part of the cost of hiring you, or corporate income taxes (which also get payed by households).
Still, not exactly a good sign.

Count to 10 on April 18, 2011 at 10:20 AM

Up to 1065, that level was around 6%.

Then came the Battle of Hastings, and things would never be the same…

steebo77 on April 18, 2011 at 10:21 AM

My liberal friends would say that this is a good thing for the times we are in.

They love the Great Depression and see our current problems as the same thing.

We must spend our way out. Really? Really?

Do we want to have this last 23 years like the Great Depression did? Really?

Cinematicfilm on April 18, 2011 at 10:23 AM

Who the heck is getting all this money? It sure isn’t me.

rbj on April 18, 2011 at 10:23 AM

1965 typo, no biggie

cmsinaz on April 18, 2011 at 10:25 AM

Weaning folks is easier said than done with the lsm and dear leader scare tactics

cmsinaz on April 18, 2011 at 10:27 AM

No surprise, what with the way LIBERALS (I now refuse to call them “progressive”) want things and the LIBERAL POTUS…

America’s chickens… are coming home… to roost…

Time to stop the giveaway train… it is bankrupting the rest of us…

Khun Joe on April 18, 2011 at 10:27 AM

The long-term solution isn’t to raise taxes, but to wean the American public off of its historic dependence on welfare and social spending.

Sure. Like that’s gonna happen.

Does the name Peggy Joseph ring a bell?

How about Obama Stash?

So those of us who have worked hard all of our lives, paid our bills, raised our families and saved a few bucks for retirement are seeing the fruits of our labors going to pay for deadbeats and low-lifes who think BHO and the gubmint are their new best friends.

GrannyDee on April 18, 2011 at 10:35 AM

Did you know that

Nearly Half of US Households Pay No Income Taxes Yahoo.com reported

Nearly Nobody on April 18, 2011 at 10:37 AM

Yuval Levin has a great article in National Affairs on the sorry state of the Welfare Nation.
Beyond the Welfare State

JimK on April 18, 2011 at 10:42 AM

The only other time government income support exceeded taxes paid was from 1931 to 1936. That trend reversed in 1936, after a recovery was underway, and the economy fell back into a second leg of recession during 1937 and 1938.

Yeah, leading to FDR’s Sec Treasury saying “All that money, WASTED.”

Too bad Barry didn’t take any history or economy classes on the way to his affirmative action diploma.

GarandFan on April 18, 2011 at 10:42 AM

Up to 1065, that level was around 6%.
Then came the Battle of Hastings, and things would never be the same…
steebo77 on April 18, 2011 at 10:21 AM

Well played.

Patrick S on April 18, 2011 at 10:43 AM

All by design.

Del Dolemonte on April 18, 2011 at 10:46 AM

For the first time in 72 years, the percentage of average household income supplied by the government exceeded that of the taxes paid to the government.


“Hope and Change”

Baxter Greene on April 18, 2011 at 10:55 AM

My liberal friends would say that this is a good thing for the times we are in.

They love the Great Depression and see our current problems as the same thing.

We must spend our way out. Really? Really?

Do we want to have this last 23 years like the Great Depression did? Really?

Cinematicfilm on April 18, 2011 at 10:23 AM

Better tell them that we didn’t get out of the Depression through New Deal stimulus spending. Hitler came to power not long after FDR’s inauguration. As the New Deal cranked along, so did the re-armament of Germany.

Sekhmet on April 18, 2011 at 11:22 AM

Does this include “Transfers of Income to Households” in the tax code?

Michael K. on April 18, 2011 at 11:25 AM

Gov’t handouts exceed taxes as percentage of average household income for first time since 1936

And it’s because those dirty rich b@st@rds aren’t paying their fair share!! /s

mizflame98 on April 18, 2011 at 11:31 AM

Update: 1965, not 1065. That Battle of Hastings sure was a bummer, wasn’t it?

Wouldn’t know. It happened in 1066. You’re a year off. :-D

mizflame98 on April 18, 2011 at 11:33 AM

It’s Bush’s fault. Him and that stinkin tax cut on the rich. /s *
* I’m saving the trolls the time and effort it would take for them to post by bring up their talking points for them. Now we don’t have to hear from Ernesto.

mizflame98 on April 18, 2011 at 11:35 AM

Nonsense. We need more stimulus. More spending. Higher taxes on the rich (they don’t pay anything, you know). Let’s cut spending in the tax code! The debt limit? Raise it!

Double dip recession? Yes We Can!

John Deaux on April 18, 2011 at 11:39 AM

Hmmm so many references to the Depression within the last little while. Can we call this Depression II finally, and admit what our situation is?

Does anyone believe the CRU style bogus unemployment numbers or the Failbama reported GDP?

Now the dunce is talking about tax increases again and his cronies at the IRS are asking for authorization to require companies to report – potential future earnings as reported here on HA last week…

What effect do you all expect from his continual toxic behavior toward the workers and producers?

dogsoldier on April 18, 2011 at 11:41 AM

45 million on Food Stamps. Millions getting extended unemployment insurance. God only knows how many more have signed up for the EITC the last 2 years. More people going on disability because they are near retirement age and can’t find another job or don’t want to look for one.

Back in February I visited a friend who has had a good career in IT services at colleges and universities. He grew up very poor in rural Kentucky. He told me his entire family are on disability and welfare. He goes back home and all they talk about is how to get a government check. He is the only one of about 30 family members who went to college and has a job.

rockmom on April 18, 2011 at 11:52 AM

Does this include “Transfers of Income to Households” in the tax code?

Michael K. on April 18, 2011 at 11:25 AM

Only in the “from Households” side.

Count to 10 on April 18, 2011 at 11:59 AM

I have to speak up for the vets on this. Veterans’ benefits are not “handouts.”

If they are, then all government pensions are “handouts” too, and millions of federal, state, and local retirees are on them.

If there is a need to reform pensions and retirement benefits because they are unaffordable, that’s a valid issue. It’s worth noting that military veterans are not seeing nearly the benefits retired civil service employees are. In quite a few states, pensions and retirement benefits for public employees are twice what 30-year veterans and disabled vets are getting.

But that said, there may be a valid need for pension/benefit reform. That doesn’t make military pensions or veterans’ benefits “handouts,” and the issue shouldn’t be couched in those terms.

If you don’t like hearing your pension referred to as a “handout,” because you worked for it, it was part of your employment contract, and you aren’t getting any more than the original contract specified — I agree with you. You’re not getting a handout. Neither are veterans.

J.E. Dyer on April 18, 2011 at 12:21 PM

Then came the Battle of Hastings, and things would never be the same…

steebo77 on April 18, 2011 at 10:21 AM

I haven’t laughed that hard at a comment in a long time.

BadgerHawk on April 18, 2011 at 12:22 PM

mizflame98 on April 18, 2011 at 11:33 AM

Well, there was all the UN resolutions and media saying we shouldn’t get involved in the lead up to the Battle of Hastings in 1065. The English had just got finished with a couple wars including with those dirty Vikings at Stanford Bridge. The evil Normans took advantage of them.

Wolftech on April 18, 2011 at 1:24 PM

J.E. Dyer on April 18, 2011 at 12:21 PM

My Dad was a WWII vet, served out his 20 years in Reserves. He became a lawyer and then a Judge. After retirement, he volunteered time to his “old buddies” at the VFW and Legion in connection with their disability ratings.

The VA has notoriously tried to stiff Vets. Most of the people my Dad helped had stormed the Normandy beaches on D-Day (29ers Go! Company E). I remember one fellow who had a bullet permanently lodged right next to his heart. It couldn’t be removed and limited what he could do severely. The VA wanted to cut his benefits. So many cases like that and the poor folks who couldn’t afford any advocate just plain didn’t have a prayer in their appeals.

I hope it is better in this day and age but I doubt it.

On the other hand, I think there are some benes that Vets get that probably aren’t necessary or not to the extent that they are given. I am all for those who have served in harm’s way but I have met up with people from various internet groups over the years who were proud of how they served but when called on to actually fight were miffed because they “only joined up to get their education”. People like that should be thrown out of service, not rewarded, IMHO.

Greyledge Gal on April 18, 2011 at 1:24 PM

And there are armies of new VISTA employees, hired for the sole purpose of signing up people for food stamps, making sure that the Cloward Piven strategy is finally implemented.

Look for US Bankruptcy in 5 . . 4 . .3 . .. . ..

Greyledge Gal on April 18, 2011 at 1:27 PM

rockmom on April 18, 2011 at 11:52 AM

Disability isn’t all bad. My Mom was on it when she got COPD several years before retirement age.

Wolftech on April 18, 2011 at 1:27 PM

My boarder (a student in college) paid $75.50 in federal taxes this past year. His refund will be $202.00. Given how he spends money, the Chinese will get most of it, and the gaming companies the rest.

[Disclosure: As a person firmly in the middle class, I pay 1/3 of my income as tax to the Feds.]

unclesmrgol on April 18, 2011 at 2:53 PM

How much of it goes to illegals? In Texas 70% of Illegal Aliens Receive Welfare

Nice scam, -run into Texas, drop a baby who is thereby an American citizen that you can use to get on the dole.

slickwillie2001 on April 18, 2011 at 3:24 PM

Who the heck is getting all this money? It sure isn’t me.

rbj on April 18, 2011 at 10:23 AM

Better question might be, WTH does it go after they spend it?

Obviously not going back into the system here but China and elsewhere (so much for the wealth redistribution argument); and into the accounts of major corporations (so much for the trickle down theory).

Dr. ZhivBlago on April 18, 2011 at 4:53 PM