What is the expertise of the federal government? It’s not in defending the nation, which only gets around 20% of the resources, even though most people would concede that as the primary job of the federal government. As John Merline points out, the government actually spends more time and resources cutting checks than anything else it does. The White House budget’s Historical Tables volume shows that direct payments to individuals have increased from 2.4% at the end of World War II to 66.2% in 2010, including grants. Ten years ago, that number was 60.6%. Excluding grants, we have gone from 1.9% in 1945 to 54.8% now.
As percentage of GDP, the numbers look just as bad. In 1945, the total outlay for direct payments to individuals was 1.0%, with a constant dollar value (FY2005) of $18.6 billion ($2.215 billion in actual 1945 dollars). Now those payments account for 15.8% of GDP and $2.038 trillion. In effect, the federal government now redistributes 15.8% of the nation’s economic output, or roughly one-sixth of every dollar.
And whose wealth gets redistributed for the payments? Merline also sees a decades-long trend there:
In fact, according to the IRS, which collects such data, the share of income taxes paid by the richest 1 percent almost equals the share of income taxes paid by the bottom 95 percent. Today, roughly a third of those who file a tax return don’t pay any federal income tax at all, or get more in refundable tax credits than they pay in taxes. (In 1985, only 18 percent fell into this camp, according to the Tax Foundation.)
Merline also gives us two charts which should be required reading today. First, the sixty-five year trend of individual payments as a portion of government spending:
And next, the contributions to the federal revenue by income demographic:
And here’s a chart of my own, showing the growth in redistribution over the last 65 years:
Some of the sharp increase in the last three years can be attributed to Baby Boomer retirement, and others to the influx of funds to emergency funding for unemployment. Clearly, though, this is an unsustainable rise — and a dramatic change in the redistributive efforts of the federal government. We don’t need more soak-the-rich policies; we need to start containing individual payment programs, and we need to do it now.