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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By some other measures – such as taxes or spending as a share of the overall economy –the federal government isn't particularly large now. Even a controversial war in Iraq hasn't changed that.

But as insurance programs embrace an aging population, government is on track to grow.

For his analysis of government beneficiaries in the US, done last year, Shilling looked at data from 1950 through 2004. His tally was conservative on several fronts – including the care he took to avoid double-counting anyone.

He added up the number of federal, state, and local government workers, plus private sector workers who owe their jobs to government. He then tallied the recipients of transfer payments (like pensions) and a few other substantial programs (like food stamps). And he tacked on the dependents of these direct beneficiaries.

He divided his total by the US population to get a "government beneficiary" ratio for each decade. The ratio has risen, he found, from 28.3 percent in 1950 to a peak of 55.0 percent in 1980. It edged down in 1990 and again in 2000, and now has begun climbing again.

Looking at the big picture, especially entitlements for older Americans, some experts worry about a fiscal undertow.

"I fear that we may be on the path to becoming a decrepit, high-unemployment welfare state," says Daniel Mitchell, an economist at the libertarian Cato Institute in Washington. Economists differ regarding whether, or at what level, a high tax burden acts to dampen economic growth. European nations have shown, for example, that advanced economies can maintain generous social-welfare programs.

But Mr. Mitchell says these nations pay a price of more tepid growth. Sweden, he says, has in recent years dropped off the global Top 10 list for per-capita output. Ireland, by contrast, has kept the government burden low and enjoyed rapid economic growth.

[Editor's note: The original version repeated a quote.]

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