A Growing Share of Americans' Income Comes from the Government

While most eyes were focused on the better-than-expected gross domestic product data for last year's fourth quarter, this week's report from the Commerce Department's Bureau of Economic Analysis also included details on U.S. personal income.

Along with wages and salaries, dividends and interest income, this category includes personal current transfer receipts, which the BEA defines as "income payments to persons for which no current services are performed and net insurance settlements." That is, government social benefits (and, to a very minor extent, net transfers received from businesses).

As you can see from the following graph, while the relationship between personal income and GDP has not changed all that much over the course of the past six decades, the share of income accounted for by transfer payments has jumped more than 200 percent.

The latest data also confirms that the financial crisis has played a major role in boosting Americans' dependence -- for lack of a better word -- on government largesse, with the run-up over the past two years accounting for around a quarter of the relative increase since 1947.

With an ever-greater share of Americans receiving some sort of financial assistance from the government, the obvious question is how -- or whether -- this shift will affect the political landscape, especially when it comes to making tough choices about social programs, in particular, and public finances, in general.

If and when policymakers decide, for example, that the time is right to rein in spending and cut back on public sector borrowing, will the political will be there to see those efforts through? Or, as cynics might suggest, is a financial crash landing the only real "exit strategy" that is on the table right now?

I guess we'll find out soon enough.

Comments

[Rocky]

Baby boomers started to qualify for early Social Security as of 1/1/08 and a higher percentage of them are starting their benefits at age 62 than earlier 62 year olds did. I guess the lousy economy has something to do with the boom in early applications. Why worry about the likelihood of living into your 90's when there are bills to be paid today? It's time for the Federal politicians to rein in military spending or face the wrath of senior voters.

[roger]

I believe ,ROBERT FROST said, life will become so complicated,
that some day this country will embrace Socialism

[Matt]

I hope not Roger.

[just doug]

So what % of the population are leeches when you add on wages paid by federal, state and local governments? I think that number would be truly appalling and pretty much settle any debate about where things are heading.

[Pearls]

More people take SS at 62 because they have done the math and realize they will get more over all if they take the less amount now instead of waiting for a larger amount.

[just.a.guy]

"It's time for the Federal politicians to rein in military spending or face the wrath of senior voters."

I agree that we have excessive military spending and the pursuit and support of empire is foolish. But if you think reining in military spending will begin to fund the promises made to senior voters, you're delusional.

[Mark]

Yep, I've written about this as well Michael.

1 in 6 dollars of American income now handed out by government, the highest since (wait for it) 1929.

http://www.fundmymutualfund.com/2009/06/1-in-6-dollars-of-income-now-via.html

Also federal aid has surpasses sales tax as the #1 generator of income for the states!

http://www.fundmymutualfund.com/2009/05/federal-aid-surpasses-sales-tax-as-top.html

"free market capitalism"? haha. Social welfare state.

[ana]

delisioso

[Laura Borst]

Government might control people by making them dependent on it. An interesting clue is that the word "Nazi" is an acronym for "National Socialism"(or whatever that is in German).

[Oldie]

your mama don't dance and your daddy is on the dole...