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The Welfare States of America – Data That Even Blew My Mind

by Darwin on February 8, 2012

I’ve known we’ve been turning into a welfare state ever since I started digesting, well, anything other than the mainstream media outlets.  But the latest report out of the Heritage Foundation shows just how staggering the situation has become.  It’s not just the current state that is alarming – but where we’re headed.  They released a pretty extensive report which you can find here (2012 Index of Dependence on Government), but I’ve culled out just a few of the charts I found to be most insightful:

Half Of America Pays No Federal Income Taxes

 

Federal Income Tax Chart

 

This one always gets under the skin of liberals who claim, “well, they DO pay state/local taxes, payroll taxes, etc”.  Sure, but those are completely different programs funding, well, things they get back in some way – related to STATE and LOCAL spending.  So, state/local taxes are used for their local schools, roads, state welfare programs, etc. and payroll taxes go into the Social Security fund of which they will someday be a recipient (what’s left o it).  However, fully half the country doesn’t pay a dime in Federal Income taxes (of which all Americans derive benefit as well) yet they are the loudest proponents of increasing taxes on the rich.  How can one possibly complain about the tax rate of wealthy Americans when they don’t pay a dime themselves?  This is lunacy.

 

Read That Again

 

Almost 3/4 of our federal dollars go toward federal dependence programs.  That’s incredible.  We can cut foreign aid, military spending and other popular targets all we want, but if don’t ween Americans off the federal teet, we’re doomed.

 

Growing Number of Americans Dependent on Government

 

So, as we seek back and mock Greece, we’re becoming… Greece.  I like how they had to throw in there (not including government employees) since in a way, they are also dependent on your tax dollars.  Many of those jobs are necessary, many are not.  But check out the trend on non-employee dependence and think about how this bodes for your future tax dollars.

I hate to break it to ya, but raising taxes doesn’t solve this problem.  They’ll just piss away more.  If we raised every American’s tax rate by 10% last year (the ones that paid something), we’d still be running a deficit.  We need to spend less and we can’t.  Politicians have trained Americans so well to “get mine” that they are unelectable if they propose cutting any entitlement programs.  So, instead, we choose Greece.

 

Concerned Yet?

 

{ 46 comments… read them below or add one }

Terry February 8, 2012 at 9:38 pm

Childless burger flippers working full time at minimum wage pay more than $1,600 a year in federal taxes, including $500 in federal income tax and $1100 in payroll taxes. (Dunno where you got the idea payroll taxes aren’t federal.)

Bush’s expanded child tax credits helped a lot of middle class families get off the tax wagon.

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Darwin February 8, 2012 at 10:12 pm

Yup, knew that was coming. I updated and underlined the “Income” part for everyone. I’ll have to do a post next on: FEDERAL INCOME TAXES ARE NOT PAYROLL TAXES. They are different. They go toward completely different programs and only have the country pays income taxes.

As far as the burger flipper, children are only one of dozens of tax breaks in the tax code, in addition to the standard deduction. And oh, housing assistance, food stamps, free cell phones and all the other goodies the government provides, so in general, those at the lower end of the income earning spectrum do not end up with a federal income tax liability. It’s not just people with kids and houses.

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Alan February 9, 2012 at 10:02 am

Great post. We have to reverse this trend. I pay my share but I also have desire, drive, ambition, and self-reliance. What about those who are on these “assistance” programs?

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Darwin February 9, 2012 at 10:03 pm

I get that some people will just never have the means, ability or income to even work, let alone pay income taxes, that’s a minority – not 50%.

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Monica February 9, 2012 at 11:09 am

Finally, someone tells it like it is!! I have been concerned about this for many years, especially since I have witnessed what happens in a welfare state. I lived in England briefly and people on the “dole” would work for a few months, get paid under the table, and still get every government handout. Shockingly, many of them were proud that they could scam the government, and felt it was their right. They also believed that the “rich people” should fund their lifestyles because it was unfair that they had so much money. A tiny percentage of the workers in England fund a huge portion of the welfare state, and that is where we are headed.

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Darwin February 9, 2012 at 10:04 pm

That’s a very common belief amongst freeloaders the world-wide. Stinks; I guess as a society we allow it, so they’ll take it.

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Rachel February 9, 2012 at 11:50 am

I have paid taxes since I started working. I even paid taxes on my unemployment benefits after the break you get where the first however much is tax free. Federal taxes and payroll taxes are not the same thing either. Payroll taxes fund social security and medicare. Income taxes fund everything else. It drives me crazy to think that after all my hard work half the population isn’t contributing to the general well-being of this country. I find it impossible to believe that 50% of the people in this country are so impoverished that they shouldn’t have to pay for the infrastructure of this country that they use every day. Nobody deserves use of my money but me. I don’t mind paying for infrastructure and basic services, but the abuse of the system is infuriating.

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Darwin February 9, 2012 at 10:05 pm

It’s very much about the deductions and credits. While I enjoy deductions for mortgage interest and such as well, I still pay income taxes!

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retirebyforty February 9, 2012 at 4:53 pm

I’ve been paying plenty of tax for over 15 years and I’m not getting any of the hand out. Yes, I am concern. We need some kind of tax reform, but it will be mired in the mud for years to come.

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Darwin February 12, 2012 at 4:29 pm

There will always be givers and takers in the system. Problem is the takers are increasing while givers are decreasing.

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Andy Hough February 9, 2012 at 6:59 pm

Including the second chart after the first is a little misleading. The federal income tax provides about 40% of the money the government spends. If you cut out the dependence programs such as Social Security and Medicare then you would also need to cut out the corresponding taxes so there wouldn’t be much of a gain.

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Darwin February 12, 2012 at 4:29 pm

I don’t follow – included a couple charts from the initial report. Why does the order matter? It’s all there.

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Sam February 9, 2012 at 7:43 pm

Severely concerning. A positive is that any high income earner paying tons of taxes, won’t anymore and can start getting some money back.

Government addiction is strong to ween off!

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Investor Junkie February 10, 2012 at 10:57 am

IMHO I think a revolution or civil war will be easier.

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Darwin February 12, 2012 at 4:30 pm

We make it too easy IMO. Free cell phone minutes to the poor? What happened to necessities?

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Sam February 9, 2012 at 7:46 pm

Who loses their job that is…..

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Investor Junkie February 10, 2012 at 10:52 am

Hey Sam, Somehow you gotta get fired of laid off. Keep working at it!

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Money Infant February 9, 2012 at 10:30 pm

It is just too easy to get gov’t handouts, that is why all of these programs are being used so heavily and even abused. If it were more difficult I wonder how many on the roles of welfare, food stamps, housing assistance and the like (99 months of unemployment wtf?!?) would find another way to get by with the help of friends and family? There is a bigger problem with the fabric of society these days and that is the lack of family connections and support and the increasing role that the gov’t is taking to fill that void.

Here in Thailand there is no gov’t assistance with the exception of a healthcare program that allows citizens (not illegal aliens or anyone else) to receive healthcare for $1 per procedure. Other programs come and go at need, such as loans and disaster relief after the recent flooding in Thailand that destroyed so many peoples homes and rice fields. To go along with that the employment tax is quite low, there are no taxes on capital gains, no taxes on property and very low taxes on pretty much anything personally related. The higher tax rates are reserved for businesses.

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Darwin February 12, 2012 at 4:31 pm

The only other countries with “generous” and “compassionate” programs like ours are all broke. Europe isn’t exactly showing a strong balance sheet.

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JT February 9, 2012 at 11:35 pm

Was this a wake up call?

A combination of Social Security taxes plus all personal income taxes barely afford the interest on the debt plus Medicare and Social Security. FICA + personal income taxes are like 80% of the entire government income. Crazy.

Which brings up my favorite point: it’s time to lower corporate taxes. No corporation is ever going to choose to claim income in the United States when income is taxed at 35%. Lower the rate to 6% and undercut the whole world. Then, every business worth its salt will move headquarters and operations here to make the US the official home country for the business, all for tax purposes.

Sady, I think the voting public would prefer that companies paid $0 in taxes at a very high tax rate than billions upon billions of dollars at a low tax rate. What can you do?

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Darwin February 12, 2012 at 4:32 pm

I just saw this wkd Obama is going to advance that proposal. Of course, while taxing foreign profits and eliminating deductions. So in the end, it will be a net increase in taxes collected, but he’ll claim he’s ‘lowering taxes’.

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Investor Junkie February 10, 2012 at 10:54 am

In other news there is massive waste in the free phone/cell phone program:

http://news.yahoo.com/washington-footing-cell-phone-bill-millions-low-income-202500656.html

Who knew??

Can’t wait for that efficient Obamacare.

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Darwin February 12, 2012 at 4:32 pm

Yeah, that’s absurd. Whenever the government gives out freebies, the scammers line up.

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PK February 10, 2012 at 12:19 pm

Tocqueville predicted a tyranny of the majority taking place. If income tax is the alpha issue for many Americans (I assume it is…), then eventually we will work ourselves into a system where 50% + 1 voter tax the 50% – 1.

I do think you should make some concessions for payroll taxes – the odds that younger workers will get a back what they paid in (let alone a return) is near zero percent. For them… it’s just another tax, haha.

Hopefully a party becomes dedicated to fiscal discipline – and tax equality…

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Darwin February 12, 2012 at 4:33 pm

Yup, current generation stealing from future generations. They aren’t looking back.

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cashflowmantra February 10, 2012 at 12:37 pm

Greece is a timely comparison. Well, I can tell you that I pay my fair share of taxes.

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Darwin February 12, 2012 at 4:33 pm

Makes me shudder.

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m February 10, 2012 at 12:58 pm

a bit misleading but an okay article, of course take out the age group 0- 18that have no income because they have no jobs. The elderly that lived on Social Security and have no income, then take out the 10% unemployed because they have no income. I can see how you come up with those numbers. As more and more retirees come online with retirement income nontaxable because they’ve already paid taxes on their 401(k). Social Security is not taxable I can see easily how this trend will continue. Of course we should trim wherever we can and make those trimmings fair. But to destroy the safety net is not the way.

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Darwin February 12, 2012 at 4:34 pm

umm, kids aren’t counted in the numers. They don’t file returns.
elderly and unemployed do not nearly comprise 50% of all filers. maybe 25% tops.

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Me No Likey February 10, 2012 at 12:58 pm

The Free Shit Army will always be with us.
Every single morning without fail after I’ve hauled my ass 0ut of bed to get on my lovely commute to my lovely job that pays less than the one I had 6 years ago, there he is: black dude with his little free shit sign walking between cars wanting what amounts to yet another transfer payment…i don’t acknowledge this one, but i’m sick of supporting all the rest of the lazy ass motherf**kers…

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Darwin February 12, 2012 at 4:35 pm

plenty of white welfare moms, dads and slackers to go around – I don’t care about race or color, just the bullshit has to stop.

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Christina Rice February 11, 2012 at 2:33 pm

I’m calling “no fair” on the “gets under the skin of liberals”. What gets under my skin is overgeneralizing and stereotyping. There are plenty of conservatives who would be loathe to whittle away at certain entitlement programs that need a haircut just as there are liberals who are concerned at our disgusting and frightening culture of big government dependence. The Greek situation should be a giant warning to us – agreed. However, slinging “liberals” as the enemy of ecomomic reform builds a wall of bipartisan gridlock that results in…well, where we are now.

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Investor Junkie February 11, 2012 at 2:52 pm

You are completely correct. It is Liberals and Republican RINOs that are the issue.

Though currently who just created a big brand new entitlement without fixing existing ones? Obamacare was approved by the Democratic party only. History better not warp that fact.

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Darwin February 12, 2012 at 4:37 pm

It is completely fair. My classification of liberal anger was not just at the handouts but the notion that the federal INCOME tax is different than the other taxes paid. Liberals love to highlight how granny for poor Johny are already paying a high effective tax rate due to gas taxes, state taxes, etc. The bottom line is federal income taxes are funded by only half the country. Different taxes collected are not relevant to the conversation. 50% is 50%.

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YFS February 11, 2012 at 11:58 pm

I agree with you raising taxes doesn’t fix the problem in and of it’s self. Major reform needs to be made on our spending side of the house. Some of the major reform includes weening people off government assistance. The problem is that any politician who wants a long career in politics will have a hard time passing this one to their constituents.

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Darwin February 12, 2012 at 4:38 pm

Once we pass this inflection point where half the country is funding our government, it will be tough to ever go back. When we reach a point where only 30% of Americans are funding the federal income tax revenues, it just continues to go downhill from there.

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Bryan February 12, 2012 at 2:51 am

It is completely dishonest and misleading to exclude payroll taxes, that are paid to the federal government by those people supposedly paying “no federal tax”, whilst including the programs, medicare and social security, that payroll taxes contribute to. This ‘report’ is clearly nothing more then political propaganda from a right wing think tank. Sad so many are falling for it.

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Darwin February 12, 2012 at 4:41 pm

It is completely dishonest and naive to claim these are all the same thing – or even related. Federal income tax is FEDERAL INCOME TAX. It is not a state tax, a gas tax or a tax on soda. It is the tax collected from an ever decreasing portion of Americans to fund our federal government with programs that are distinct and separate from social security or state/local taxes.

How’s this, how about from now on, your state tax is 15%? After all, I’m paying federal and all the other taxes? It wouldn’t be fair, right?

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Bryan February 12, 2012 at 10:14 pm

I’m not saying they are the same thing but payroll taxes go towards paying for social security and medicare. Those are the two biggest items in the 70% “government dependence” spending figure(43% of total government spending in 2011 between the 2.) So although you might see social security as distinct the Heritage Foundation report you’re referencing does not. If they aren’t going to count payroll taxes in the income side, they shouldn’t count what payroll taxes are designed to pay for on the expense side. It paints an inaccurate picture where it seems that many people are not paying into these programs when in fact they are paying for them. But don’t let facts get in the way of ideology.

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101 Centavos February 12, 2012 at 11:59 am

My parents are SS recipients. I advised them to get all they can for as long as they can.

Maybe we’ll end up as Greece. More than likely, we’ll end up like Italy, where by some estimates, half the economy operates underground, “in the black” and off the tax rolls.

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Darwin February 12, 2012 at 10:30 pm

I don’t think anyone’s at risk of a SS cut in the next 20 years. Those are current voters. Heck, the democrats even painted an increase in the retirement age like 25 years from now as “breaking the backs of the working American” or whatever, as if 25 years isn’t enough to plan. No, this will be a problem down the road, but one today’s young people (all those hope and change Obama voters) will have to cope with.

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Sam February 12, 2012 at 1:06 pm

The Heritage Foundation?! Give me a break. This is the same foundation that claimed that the Bush tax cuts would create strong economic growth and would increase revenues.

Here’s a more well rounded discussion of this right wing talking point on taxation.

The 51 percent figure is an anomaly that reflects the unique circumstances of 2009, when the recession greatly swelled the number of Americans with low incomes and when temporary tax cuts created by the 2009 Recovery Act — including the “Making Work Pay” tax credit and an exclusion from tax of the first $2,400 in unemployment benefits — were in effect. Together, these developments removed millions of Americans from the federal income tax rolls. Both of these temporary tax measures have since expired.

In a more typical year, 35 percent to 40 percent of households owe no federal income tax. In 2007, the figure was 37.9 percent.

Source: http://www.taxpolicycenter.org/numbers/Content/PDF/T09-0412.pdf

The 51 percent figure covers only the federal income tax and ignores the substantial amounts of other federal taxes — especially the payroll tax — that many of these households pay . As a result, it greatly overstates the share of households that do not pay any federal taxes. Data from the Urban Institute-Brookings Tax Policy Center show only about 14 percent of households paid neither federal income tax nor payroll tax in 2009, despite the high unemployment and temporary tax cuts that marked that year.

Source: http://www.taxpolicycenter.org/numbers/Content/PDF/T09-0333.pdf

When all federal, state, and local taxes are taken into account,the bottom fifth of households paid 16.3 percent of their incomes in taxes, on average, in 2010. The second-poorest fifth paid 20.7 percent.

Source: Citizens for Tax Justice, 2010

Most of the people who pay neither federal income tax nor payroll taxes are low-income people who are elderly, unable to work due to a serious disability, or students, most of whom subsequently become taxpayers. (In a year like 2009, this group also includes a significant number of people who have been unemployed the entire year and cannot find work.)

Some 70 percent of people who owe no federal income tax in a given year are low-income working households. These people do pay payroll taxes, as well as federal excise taxes (and, as noted, state and local taxes). Most of these working households also pay federal income tax in other years, when their incomes are higher — which can be seen by looking at the low-income working households that receive the Earned Income Tax Credit (see next bullet).

The majority of EITC recipients receive the credit for only one or two years at a time, such as when their incomes drop due to a temporary layoff; they pay federal income tax in other years. In fact, EITC recipients pay much more in federal income taxes over time than they receive in EITC benefits. A leading study of this issue found that taxpayers who claimed the EITC at least once during an 18-year period paid a net $473 billion in federal income tax over that period (in 2006 dollars). This finding shows that — while in any single year some taxpayers will receive refundable tax credits whose value may exceed their payroll tax liability — EITC recipients as a group pay significant federal income taxes over time in addition to the payroll and state and local taxes they pay each year.

Source: Tim Dowd and John B. Horowitz, “Income Mobility and the Earned Income Tax Credit: Short-Term Safety Net or Long-Term Income Support,” Public Finance Review

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Investor Junkie February 12, 2012 at 2:03 pm

Sam,

Your source: Citizens for Tax Justice, 2010″ isn’t exactly neutral either. Just quoting their about page:

http://www.ctj.org/about/background.php

Some of the code words that makes it obvious they are progressive:

“Fair taxes for middle and low-income families”
“Requiring the wealthy to pay their fair share”

And the word progressive plastered all of the place. But let’s take what they state at face value.

“When all federal, state, and local taxes are taken into account,the bottom fifth of households paid 16.3 percent of their incomes in taxes, on average, in 2010. The second-poorest fifth paid 20.7 percent.”

Taken in this context is sounds horrible, but let’s talk about the reality.

So what they are basically stating the rich and poor are paying approximately the same amounts in effective rate percentages. Many other studies have shown this, but I assume they show wha the “rich” really pay (at least I couldn’t find it on their web site)? The middle class typically pays the highest from the many studies I’ve seen.

Even Romney, the poster child for not paying his “fair taxes”, paid around the same amount at 14% (that’s just his federal tax). He is also more the exception than the rule. Let’s not forget he also donated 16% to charity in addition to his taxed amount.

So please tell me again, how are the rich not paying?? This isn’t including corporate tax also, which to a small business owner, like me is really a double tax on income generated. While I may pay 15% effective federal tax personally, my corporate tax isn’t usually included in that equation. All that is stated is businesses need to “pay their fair share”. Hogwash!

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Investor Junkie February 12, 2012 at 2:10 pm

Let me also add historically the government has been able to only collect 16-18% of taxes to GDP, so your numbers mentioned and what the “rich” typically pay are all in line with that.

http://www.heritage.org/budgetchartbook/current-tax-receipts
http://taxprof.typepad.com/taxprof_blog/2010/11/wsj-hausers-law.html

Though currently we are spending 25% of GDP on government programs. This is up from the typical 20% over the years. So the answer is obvious, we are spending way too much than our receivables. But don’t let that fact get in the way of a progressive ideology.

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Investor Junkie February 13, 2012 at 7:41 pm

Darwin you’ll love this suggestion by the WH today on taxes. A global minimum tax:

http://www.youtube.com/watch?v=gO5B1378P54

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Investor Junkie February 13, 2012 at 8:57 pm

Also here is the recent estimates of Debt to GDP and spending to taxes collected.

Anyone see a problem here?

http://online.wsj.com/article/SB10001424052970204883304577221342883636060.html?KEYWORDS=global+tax

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