America’s Middle Class Gets More Welfare Than the Poor

“programs for the poor are only a tiny portion of the U.S. welfare state. In fact, the Congressional Budget Office estimates that more than 60 percent of American households receive more in government benefits than they pay in taxes. To get an idea of just how big the American welfare state has become, consider that those transfer payments from the federal government are equal to 34 percent of all wages and taxes in the U.S.”

“The largest transfer programs are the middle-class entitlements, Social Security and Medicare. In addition, a large portion of the third biggest entitlement program, Medicaid, actually goes to the middle-class elderly and disabled individuals, not the poor. Those three programs alone now make up more than half of all federal spending.”

“we need to understand that, in practice, when an individual pays Social Security taxes, none of those taxes are set aside for that individual’s benefits. Rather, they are used to pay benefits to those who are currently retired. Social Security is merely a transfer payment from workers to retirees. In that sense, it operates exactly the same as any other transfer or welfare program.”

“Many individuals will receive more than taxes paid plus a reasonable amount of interest on those taxes.”

“according to the Social Security system’s trustees, the program faces a future shortfall of more than $43 trillion7 (measured in discounted present value over an infinite horizon—that is, if the government put away $43 trillion today and earned 3 percent interest on those funds, it would have enough money so that, combined with payroll taxes, it could pay all future benefits). Unfortunately, however, the federal government doesn’t have an extra $43 trillion. As a result, there is simply no way that Social Security can pay future benefits without a massive tax increase.”

The Truth About Income Inequality

“On a global scale, inequality is declining. While it has increased within the United States, it has not grown nearly as much as people often claim. The American poor and middle class have been gaining ground, and the much-touted disappearance of the middle class has happened mainly because the ranks of the people above the middle class have swollen. And while substantially raising tax rates on higher-income people is often touted as a fix for inequality, it would probably hurt lower-income people as well as the wealthy. The same goes for a tax on wealth.

Most important: Not all income inequality is bad. Inequality emerges in more than one way, some of it justifiable, some of it not. Most of what is framed as a problem of inequality is better conceived as either a problem of poverty or a problem of unjustly acquired wealth.”

“The Congressional Budget Office (CBO) produced a report in November 2018 on the growth of household income in each of five quintiles. Between 1979 and 2015, average real income for people in the top fifth of the population rose by 101 percent, while it rose for people in the bottom quintile by “only” 32 percent. For the middle three quintiles, average real income increased by 32 percent as well.

Or at least those are the numbers if you ignore the effects of taxes and direct government transfers. But you really shouldn’t leave those out: If you’re debating whether to increase taxes on the rich and transfers to the poor, it seems important to take into account the taxation and safety net already in place. Once the CBO researchers subtracted taxes and added welfare, Social Security, and so on, the picture changed dramatically for the lowest quintile: Income rose by 79 percent. (For the middle three quintiles, it increased by 46 percent. For the highest quintile, it went up by 103 percent—slightly more than before, probably thanks to Ronald Reagan’s and George W. Bush’s tax cuts.)”

“That’s still an increase in income inequality, of course. But it’s not an inequality increase in which the poor and near-poor are worse off. They’re much better off. Everyone is.”