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Dependence On Government Has Become Epidemic

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert

April 29, 2014

IN THIS ISSUE:

1. Government Dependence is at Epidemic Levels

2. Why We’re So Dependent on Government Benefits

3. Why the Welfare System Hasn’t Worked

4. The Non-Working/Single Parent Poverty Connection

5. Conclusions – How Did This Happen?

6. CBO Issues New Debt Projections & Warnings

Government Dependence is at Epidemic Levels

Did you know that the number of Americans getting benefits from the federal government each month greatly exceeds the number of full-time workers in the economy by a longshot? Sadly, it’s true.

Based on the latest Census Bureau data available, there were over 148 million non-veteran Americans who were on some kind of monthly means-tested government benefit programs in 2012, by far the highest number ever. Today, that number is around 167 million by some more recent estimates.

By comparison, the Census Bureau estimates that there were apprx. 103 million Americans who were employed in full-time jobs for the entire year in 2012. That’s a gap of 45 million people. Thus, the number of people that are taking money out of the system is far greater than the number of people working full-time that are putting money (taxes) into the system. 

[In case you’re wondering, the Census data released recently did not take into account the effects of part-time workers who in most cases also pay into the system, but in many cases also receive government benefits.]

As you’ll see just below, nearly 70% of all of the money that the federal government spends each year goes toward entitlement and welfare programs. This is why the only realistic way to balance our federal budget and reduce our massive national debt is to address and reform our entitlement and welfare programs.

Much of what the government does involves taking money from some people and giving it to other people.  Just check out the chart below from the Heritage Foundation, which shows that 69% of all federal money is spent on entitlements and welfare programs.

Federal Money Spent on Program

This chart is startling! So when politicians tell us that the main reason why we are being taxed so heavily is so that we can “build roads and bridges” and provide needed “public services,” they are lying to us. The main reason why the government taxes us so much is so that they can continue to maintain this broken system.

Editor’s Note: Some argue that Social Security and Medicare payments should not be included in a discussion about people’s dependence on government. After all, most people receiving these benefits paid into the system over the years while they were in the workforce, and the benefits they receive are tied to the amounts they contributed. (Granted, some people actually end up getting more out of the system than they paid into it.)  

However, let’s face it, we are all dependent on the government to be solvent enough to pay out our benefits whether we paid into the system or not. Many people paying into Social Security and Medicare today are concerned that they’ll never get back what they put into the system. For those reasons and others, I have included Social Security and Medicare payments in this discussion.

Why We’re So Dependent on Government Benefits

We have become a nation that is hopelessly addicted to government benefits. The following are some statistics which show that government dependence has reached epidemic levels. These stats came from www.ZeroHedge.com which can be very opinionated, but most include solid references.

  • According to an analysis of U.S. government numbers conducted by Terrence P. Jeffrey, there are 86 million full-time private sector workers [103 million total full-time workers] in the United States paying taxes to support the government, and apprx. 148 million Americans that are receiving benefits from the government each month. 
  • The U.S. government has spent an astounding 3.7 trillion dollars on welfare programs over the past five years.
  • While Barack Obama has been in the White House, the total number of Americans on food stamps has gone from 32 million to nearly 47 million.
  • Back in 1965, only one out of every 50 Americans was on Medicaid.  Today, more than 70 million Americans are on Medicaid, that’s one out of every six, and it is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.
  • In 1968, there were 51 full-time workers for every American on disability.  Today, there are just 13 full-time workers for every American on disability.
  • Over the next 75 years, the Social Security system is scheduled to pay out $134 trillion more in benefits than it will collect in taxes, according to the Trustees Report.
  • According to the most recent numbers from the U.S. Census Bureau, an all-time record 49.2 percent of all Americans are receiving benefits from at least one government program each month.  Back in 1983, less than a third of all Americans lived in a home that received direct monetary benefits from the federal government.

Bottom line: There is no question that government benefit programs and welfare in general are at epidemic levels and are completely out of control.

Does this mean I’m opposed to the government helping the poor and impoverished? Absolutely not! But the government welfare system is out of control and needs to be reformed to get more people back to work instead of them being permanently hooked on government assistance.  If not, the government will eventually be unable to pay benefits due to Social Security recipients and those truly in need.

Why the Welfare System Hasn’t Worked

When President Lyndon Johnson announced the “War On Poverty” in January 1964, the poverty rate was at 19%. A decade later, the poverty rate did fall to under 12%. However, in the late 1970s, the poverty rate increased back to 15%. While the rate fell back to below 12% in the late 1990s, it was once again back at roughly 15% by the end of 2012 (see lower chart below).

Number in Poverty and Poverty Rate

More importantly, by the end of 2012, a record 46.5 million Americans were living at or below the poverty line. Over the long-run, the War On Poverty simply hasn’t worked and the number of Americans living in poverty continues to increase.

The same is true of the means-tested welfare system in which recipients must qualify to receive benefits. When major parts of the welfare system were legislated into place over the years, the stated rationale always was that these programs would be temporary benefits that would help most people get back on their feet and back into the workforce. But it hasn’t worked that way, in fact just the opposite.

America’s welfare empire encompasses more than 200 federal and state programs, including 23 low-income health programs, 27 low-income housing programs, 30 employment and training programs, 34 social services programs, at least 13 food and nutrition programs, and 24 low-income child care programs, among others.

Federal and state governments in the US spend a trillion dollars a year just on these means-tested welfare programs, which does not include Social Security or Medicare. That is almost twice what we spend on national defense. It adds up to roughly $17,000 per person in poverty per year, over $50,000 for a low-income family of three.

Get this: The Census Bureau estimates that our current welfare spending totals four times what would be necessary to give all of the poor enough cash to bring them above the poverty line, thus eliminating poverty in America. So if we really want to eliminate poverty, why don’t we do just that? This is a highly-charged political question I must leave for another time.

Granted, there are people who legitimately need help and welfare provides a much needed benefit for them. However, it should be a temporary benefit in most cases and not a way of life.  Like many things in government, over time abuse and waste overwhelms the system.  Eventually there’s not enough money coming in to cover the benefits being paid out.

The Non-Working/Single-Parent Poverty Connection

One major reason that poverty stopped declining a decade after the War on Poverty started is that the poor and lower-income population increasingly stopped working. In 1960, nearly two-thirds of households in the lowest income 20% of the population were headed by persons who worked. But by 1991, this work effort had declined by about 50%, with only one-third of household heads in the bottom 20% in income working, and only 11% working full-time, year-round.

How could such a dramatic plunge in working have happened in only three decades? Answer: Soaring welfare programs made it easier to stay home and do nothing.

Along with this collapse of work, the War on Poverty was also associated with the breakup of lower-income families and soaring out-of-wedlock births. As the out-of-wedlock birth rate soared since the 60s and 70s, the poverty rate among this group soared as well.  

Not working and having children outside of marriage are two of the main causes of poverty in America today. Indeed, full-time work year-round, even at the current minimum wage, plus the Earned Income Tax Credit (EITC), and the Child Tax Credit, would be enough to lift nearly every American family out of poverty. Yet, the typical poor family with children today is supported by only about 800 hours of work during a year, or 16 hours per week. 

As Robert Rector of the Heritage Foundation explains, “If poor women who give birth outside of marriage were married to the fathers of their children, two-thirds would immediately be lifted out of poverty. Roughly 80 percent of all long-term poverty occurs in single-parent homes.”

Conclusions – How Did This Happen?

How is it possible that a supposedly caring government created a massive, trillion dollar a year welfare system that was supposed to assist the needy temporarily, but instead turned into a program that lures Americans into government dependence permanently in most cases?  

The bottom line is that the explosion in the welfare state has made it easier for millions of low-income families to avoid working and stay home, existing on government benefits. The explosion in out-of-wedlock births and single parent families has pushed even more Americans into dependence on welfare programs. It’s that simple.

Add to this our aging population as the number of Baby Boomers retiring grows dramatically every year, which puts more and more strain on the Social Security and Medicare trust funds.  Eventually, without some type of reform, there’s not enough money coming in to pay out the benefits due those that paid into the system, much less those living on welfare.

At the end of the day, the question is: Was this the result of misguided federal policy decisions, or was it by design? Is it possible that some of the more liberal lawmakers and the massive liberal lobbying groups that influence them want more Americans dependent on government support? After all, this helps to ensure that those dependent on the government will continue to vote to keep them in office.  That will have to be a discussion for another time. But it is a very interesting question to ponder in the meantime.

CBO Issues New Debt Projections & Warnings (excerpt from my 4-24 blog)

The non-partisan Congressional Budget Office recently issued new budget deficit and national debt projections for the next 10 years. The results show an unprecedented national debt in the coming decade.

The CBO’s new budget projections contain an eerie warning that we are on path from today’s already unfathomable $17.7 trillion in federal government debt to more than $27 trillion in 2024. And in all likelihood, even this startling estimate may be too low.

Why? Because the CBO estimated that federal tax revenues over the next decade will be higher than the 40-year average as a share of GDP. If tax revenues, as a percentage of GDP, hold steady or decline over the next 10 years, then the CBO’s latest debt projections are too low.

The CBO says the national debt will reach 78% of GDP by 2024, which is double the 39% average of the past 40 years. This figure is very misleading, as I have pointed out for many years. The reason is that our national debt of $17.7 trillion is already more than 100% of GDP!

Let me explain. At the end of 2013, the Commerce Department reported that total Gross Domestic Product – the sum of all goods and services produced in the economy – was $17.1 trillion. At $17.7 trillion, our national debt is now over 103% of GDP.

So why does the CBO say our debt will be only 78% of GDP by 2024? That’s because the CBO only counts “debt held by the public” in its debt-to-GDP ratio. According to the Fed, US debt held by the public was $12.4 trillion at the end of last year. The other $5.3 trillion is owned by various governmental agencies.

Federal Debt Held by the Public

The CBO has long argued that it should not include this debt owned by the government in its debt-to-GDP ratio calculations. I have argued for years that this debt owned by governmental agencies should be included in such ratios. After all, this debt owned by the government matures just like all other debt and must be rolled over periodically with new instruments.

So despite what the CBO says, the current US debt-to-GDP ratio is now over 100% of GDP.

The CBO warned that if our national debt soars to $27 trillion over the next decade, the consequences will include “big hikes in spending on interest payments on the debt when interest rates go back up.”

That, in turn, would increase the cost of investment and “the capital stock would be smaller, and productivity and wages lower, than if federal borrowing was more limited,” the CBO warned.

The CBO also cautioned that such a massive increase in the debt would result in “less flexibility [for future Congresses] to use tax and spending policies to respond to unexpected challenges." Most chillingly, the CBO warned that increasing the national debt to $27 trillion by 2024 “increases the risk of a fiscal crisis in which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.” No kidding!

“HWM Alpha Advantage” Webinar Recording Now Available

Our webinar on April 16 on the HWM Alpha Advantage investment opportunity was one of the most highly attended web events we have ever done. The presentation was excellent and the questions from attendees were spot-on. To view the webinar, CLICK HERE to learn more about this new diversified investment strategy.

Very best regards,

Gary D. Halbert

SPECIAL ARTICLES

Full-Time Workers vs. Benefit Takers – Terrence P. Jeffrey

Welfare Pays Better Than Work

 


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Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc. Gary D. Halbert is the president and CEO of Halbert Wealth Management, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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