"Since the creation of the Social Security system in 1935, especially during the past 30 years, the amount of income overtly transferred by governments has risen dramatically. In 1960 government transfer payments to persons amounted to $29 billion, or 7 percent of personal income. In 1993 the total came to $912 billion, or nearly 17 percent of personal income.1 In other words, one dollar out of every six received as personal income now takes the form of old-age, survivors, disability, and health insurance benefits ($438 billion), unemployment insurance benefits ($34 billion), veterans’ benefits ($20 billion), government employees’ retirement benefits ($115 billion), aid to families with dependent children ($24 billion), and miscellaneous other government transfer payments ($280 billion) such as federal subsidies to farmers and state and local public assistance to poor people."I thought it would be interesting to see how those statistics have changed from 1994 to today. More importantly, I wanted to look at the difference between tax receipts and transfer payments. People often call for the "rich" to pay more, and I thought it would be interesting to see just how much more they'd have to pay to get the system in balance.
Data Sources (*** note these are not the same sources as Higgs)
The Federal Reserve keeps data on transfer payments here. The data set I used is called:
Federal government current transfer payments: Government social benefits: To persons, Billions of Dollars, Annual, Seasonally Adjusted Annual Rate (B087RC1Q027SBEA).
Here's the first 5 years of data in billions of dollars:
| observation_date | B087RC1Q027SBEA |
| 1947-01-01 | 8.4 |
| 1948-01-01 | 7.2 |
| 1949-01-01 | 8.2 |
| 1950-01-01 | 10.2 |
| 1951-01-01 | 7.9 |
And here's the last 5 years:
| 2010-01-01 | 1710.1 |
| 2011-01-01 | 1727.3 |
| 2012-01-01 | 1767.0 |
| 2013-01-01 | 1806.8 |
| 2014-01-01 | 1863.4 |
Next, I went to Tax Policy Center and pulled a data set entitled: Summary of Receipts, Outlays, and Surpluses or Deficits (-)
And the data looks like this:
| In Current Dollars | |||
| Fiscal Year | Receipts | Outlays | Surplus or Deficit (-) |
| 1940 | 6.5 | 9.5 | -2.9 |
| 1941 | 8.7 | 13.7 | -4.9 |
| 1942 | 14.6 | 35.1 | -20.5 |
| 1943 | 24.0 | 78.6 | -54.6 |
| 1944 | 43.7 | 91.3 | -47.6 |
| 1945 | 45.2 | 92.7 | -47.6 |
Or, more recently:
| 2010 | 2,162.7 | 3,457.1 | -1,294.4 |
| 2011 | 2,303.5 | 3,603.1 | -1,299.6 |
| 2012 | 2,450.0 | 3,537.0 | -1,087.0 |
| 2013 | 2,775.1 | 3,454.6 | -679.5 |
| 2014 | 3,021.5 | 3,506.1 | -484.6 |
The GRAPH
How does this look?
Can We Afford to Close the Gap?
One interesting note is that there is NOT a single year where tax receipts exceeded transfer payments. Another interesting fact is that the cumulative deficit over the past 10 years is $9.072 trillion dollars, or ~50% of last year's GDP. Or, if we just look at 2014, we find the transfer payments were 6.89% in 2014 (vs. 8.45% using Higgs' figure of $912B vs a GDP of $6.879T in 1993).
2014 looks a little better than 1993, but the overall trend is what matters. Over the past 10 years, the deficit has been an average of 6% of GDP
| Transfer Payment vs Tax
Receipts Deficit as % of GDP |
|
| 2004 | -6.20% |
| 2005 | -7.47% |
| 2006 | -8.31% |
| 2007 | -8.73% |
| 2008 | -7.76% |
| 2009 | -3.41% |
| 2010 | -3.03% |
| 2011 | -3.79% |
| 2012 | -4.43% |
| 2013 | -6.08% |
| 2014 | -6.89% |
| Average | -6.01% |
Over this period, the average deficit has been about $907B. There are some who say that we can tax the Top 1% and everything will be okay. However, this nice table from TaxFoundation.org shows that would require the group who is already paying 35% of all income taxes to have a 58% tax rate on all income earned (not a marginal tax rate as is sometimes discussed). (Lee Ohanian has a good video tax fairness here, or you could watch a much funnier version by David Angelo here.
Table 1. Summary of Federal Income Tax Data, 2011
| |||||||
Number of Returns*
|
AGI ($ millions)
|
Income Taxes Paid ($ millions)
|
Group's Share of Total AGI (IRS)
|
Group's Share of Income Taxes
|
Income Split Point
|
Average Tax Rate
| |
All Taxpayers
|
136,585,712
|
8,317,188
|
1,042,571
|
100%
|
100.0%
| ||
Top 1%
|
1,365,857
|
1,555,701
|
365,518
|
18.7%
|
35.1%
|
> $388,905
|
23.5%
|
1-5%
|
5,463,429
|
1,263,178
|
223,449
|
15.2%
|
21.4%
|
17.7%
| |
Top 5%
|
6,829,286
|
2,818,879
|
588,967
|
33.9%
|
56.5%
|
> $167,728
|
20.9%
|
5-10%
|
6,829,285
|
956,099
|
122,696
|
11.5%
|
11.8%
|
12.8%
| |
Top 10%
|
13,658,571
|
3,774,978
|
711,663
|
45.4%
|
68.3%
|
> $120,136
|
18.9%
|
10-25%
|
20,487,857
|
1,865,607
|
180,953
|
22.4%
|
17.4%
|
9.7%
| |
Top 25%
|
34,146,428
|
5,640,585
|
892,616
|
67.8%
|
85.6%
|
> $70,492
|
15.8%
|
25-50%
|
34,146,428
|
1,716,042
|
119,844
|
20.6%
|
11.5%
|
7.0%
| |
Top 50%
|
68,292,856
|
7,356,627
|
1,012,460
|
88.5%
|
97.1%
|
> $34,823
|
13.8%
|
Bottom 50%
|
68,292,856
|
960,561
|
30,109
|
11.55%
|
2.89%
|
< $34,823
|
3.13%
|
*Does not include dependent filers.
| |||||||
Some would argue that it would be justified to raise the Top 1%'s tax rate to 58%, but all it would do is take capital that is invested in the economy and turn it into consumption. In other words, the rich are not sitting around on yachts with piles eating caviar and lighting cigars with $100 bills. Instead, they are making investments in businesses that make up the "structure of production" to use a term from Austrian economics. In other words, without constant investment of people's savings, the economy would crash. There would be no sustainable "business" if all savings were turned into consumption.
Consumption is as unsustainable as the graph above showing the perpetual deficit due to the transfer payment programs. Note that these don't add up to the Federal budget deficit because these programs are "off books" for accounting purposes. If we did bring these programs "on the books", the Federal present value of the deficit would be as high as $200T. Laurence Kotlikoff has done some great work on this topic his part starts at 5:04 in the video or here is his testimony to the Senate Budget Committee in 2015. To understand the difference between on or off books accounting:
... were we to go back in time and re-label all past Social Security taxes as borrowing, official federal debt held by the public would not be $13 trillion, but $38 trillion, which is 211 percent of U.S. GDP.
If we wanted to fix both the transfer payment programs and get rid of the fiscal deficit, we'd need to add them together ($900B + $1299B in 2011) for a total that exceeds the income of the Top 1%. Using the $434B fiscal deficit of last year would put the tax rate on the Top 1% at about 85% of income (not a marginal rate).
Summary
People have been sounding warnings for decades concerning the unsustainable nature of transfer payment programs. Even if the fiscal budget deficit was closed ($434B last year), that would NOT fund the additional $900B per year that would be required for the current year of the transfer payment programs nor would it make any payments on the cumulative deficits that already exist. The government accounting figures for these programs do not transparently report their cost or their unsustainable nature to the public. No politician is going to point this out during his or her election campaign.
Now you know a bit more about transfer payment programs and their unrealistic financial situation.
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