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As US tax rates drop, government's reach grows

Study: 1 in 2 Americans now receives income from government programs.

By Staff writer of The Christian Science Monitor / April 16, 2007

Maybe the era of big government isn't over, after all.

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As Americans finish their annual tax-filing flurry to meet a Tuesday deadline, it is true that tax rates are lower than they were a few years ago. But according to a different yardstick, the federal government's reach is expanding.

Slightly over half of all Americans – 52.6 percent – now receive significant income from government programs, according to an analysis by Gary Shilling, an economist in Springfield, N.J. That's up from 49.4 percent in 2000 and far above the 28.3 percent of Americans in 1950. If the trend continues, the percentage could rise within ten years to pass 55 percent, where it stood in 1980 on the eve of President's Reagan's move to scale back the size of government.

That two-decade shrink-the-government trend now appears over, if for no other reason than demographics. The aging baby-boomer generation is poised to receive big payments from Social Security and government healthcare programs.

"New Deal programs persist," despite the Reagan revolution and its aftermath, says James Galbraith, an economist at the University of Texas in Austin. "They persist because they are largely successful and highly popular."

Mr. Shilling's analysis found that about 1 in 5 Americans hold a government job or a job reliant on federal spending. A similar number receive Social Security or a government pension. About 19 million others get food stamps, 2 million get subsidized housing, and 5 million get education grants. For all these categories, Mr. Shilling counted dependents as well as the direct recipients of government income.

Many Americans, in surveys, say they don't like the way their tax money is spent. And a majority now says, in a reversal from a year ago, that their federal income taxes are too high, according to an April Gallup poll.

Yet at the same time, much of US population is on the receiving end of that tax-revenue stream.

Government has always created jobs, of course, as it provides everything from national defense to roads and schools. It is another type of spending, however, that is really growing in scale: Government is in the insurance business.

Healthcare and Social Security are the big programs poised for growth, thanks to the arc of the baby-boom generation, longer lifespans, and rising medical costs. Insurance-style programs also include farm subsidies and efforts to relieve poverty.

The list could grow.

Some lawmakers hope to offer "wage insurance," a temporary benefit to cushion the transition toward new jobs for workers laid off due to global competition. At the state and federal levels, politicians are also considering government's role in extending healthcare coverage to more of those who are now uninsured.

All this reflects an ambivalent America. As a rich nation, it sees the opportunity to offset financial risks faced by its citizens.

But if the concept of social insurance is popular, so is limited taxation among the people who spawned the Boston Tea Party.

More than many of its European counterparts, the United States esteems the benefits of economic freedom. "The era of big government is over," President Clinton declared as he prepared to put new limits on welfare spending in 1996.

And today, 44 percent of Americans say the Bush tax cuts should be made permanent, compared with 41 percent who oppose such a move, according to a Los Angeles Times/Bloomberg poll conducted early in April. The other 15 percent were unsure.

"You do have the yearning for cradle-to-grave paternalism, but as Americans you also have the carry-over of the frontier spirit" of individual opportunity, says Shilling. That's the trade-off that will define the scope of government, he says.

This balance will be tested in the years ahead.