As US tax rates drop, government's reach grows

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

from the April 16, 2007 edition

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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.

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