It’s about an article I recently came across, and I may or may not revisit it, but I wanted to mention something about it that bugged me.
Buried deep in a section of President Obama’s budget, released this week, is an eye-opening fact: This year, 70% of all the money the federal government spends will be in the form of direct payments to individuals, an all-time high.
In effect, the government has become primarily a massive money-transfer machine, taking $2.6 trillion from some and handing it back out to others. These government transfers now account for 15% of GDP, another all-time high. In 1991, direct payments accounted for less than half the budget and 10% of GDP.
What’s more, the cost of these direct payments is exploding. Even after adjusting for inflation, they’ve shot up 29% under Obama.
Where do these checks go? The biggest chunk, 38.6%, goes to pay health bills, either through Medicare, Medicaid or ObamaCare. A third goes out in the form of Social Security checks. Only 21% goes toward poverty programs — or “income security” as it’s labeled in the budget — and a mere 5% ends up in the hands of veterans.
Instead, a surprisingly large amount of federal money is handed out to wealthy Americans through Social Security, Medicare, farm subsidies, unemployment benefits, conservation programs, disaster payments and other programs.
An IBD analysis found that the richest 1% of Americans, in fact, receive roughly $10 billion each year in federal checks.
I added that emphasis.
So, $10 billion sounds like a lot of money, don’t you think?
It doesn’t sound all that big to me, but then I’m used to looking at financial statements and thinking about numbers much bigger than $10 billion.
So let’s try to get some context for that number, to understand whether it is actually big.
There are about 317 million people in the U.S. and let’s take 1% of that, which is 3.17 million people (usually the “top 1%” refers to households, not individuals, and those “top households” tend to be a little bigger than average, because they tend to be at least married couples…. and, it doesn’t matter, but 1% of the population estimate is close enough).
If you distribute $10 billion among 3.17 million people, that’s a little over $3000 per person.
Doesn’t sound like much now, does it?
Let’s be even more fair in comparison, and take that total $2.6 trillion in transfers. How much does $10 billion represent out of that $2.6 trillion?
Another way to compare is to look at the per person transfer amount for the entire U.S. = 2.6 trillion/317 people = about $8000/person.
So transfers tend to be a lot higher per person for the nation overall than it is for “the 1%”.
Most of those transfers to “the 1%” are likely Medicare and Social Security. Medicare benefits themselves don’t differ by your wealth or income (though your extra premiums differ), and Social Security is set up so that those who made more money, and paid more in OASDI taxes over the years, get more (though it can also be taxed more, depending on various details).
So “the 1%” are getting less than 1% of the transfer payments, because they’re not getting all the other transfers, like Medicaid, welfare, and similar programs. But they’re getting what they “earned”, like anybody else.
I happen to think that Medicare and Social Security will become very heavily means-tested, in order to survive (there are already milder means-testing built in, but a lot of it is hidden). But that’s for another time.
I get really tired of numbers being thrown around without context.
Why should I think $10 billion is a big number? 0.4% overall or $3000/person doesn’t sound all that big to me.
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