I was in a discussion a while back about one reason things like SSI and things like cash aid aka AFDC still exists is that if programs like that were totally eliminated the economy wouldnt be able to take the hit as people spending such money make up at least 25 (or more) percent of it
any truth to this? and if not how much does state and fed assistance actually make up of the us economy?
Well, it wouldn’t be pretty. I’ll tell you that for free.
Census numbers say that 21.3% of Americans are on some form of assistance (2015 numbers). That’s means-tested assistance so I believe Social Security doesn’t count. Include SSI and you’re looking at a LOT of people.
We’re looking at likely 40% of the country on some form of government assistance? Social security, SNAP, medicaid, medicare, disability and so forth. According to the fed total federal transfer payments are about $2.5 Trillion.
It’s too damn early to try to look up individual state transfers. Apologies.
But the fact is, in an economy of about $21 Trillion we’d be looking at 15-20% of spending going away. That would be offset by - theoretically - a lack of federal taxation and borrowing so it gets complicated in a hurry. And Americans would find ways to cope such as group living or a return of multi-generational households. Still, the impact would be severe and disastrous.
According to this website, the total amount spent per year on government assistance in the U.S. is $1.047 trillion:
According to this website, the average personal income in the U.S. is $53,820:
According to this website, the number of people working in the U.S. is 155.76 million:
155.76 million times $53,820 is about 8.38 trillion. 1.047 trillion is about 12.5% of that. I’m not sure if the personal income includes government assistance. My calculations give something less than Jonathan Chance’s. He figures it’s 15-20%, while I figure it’s about 12.5%. Please, if any of you have different figures, I’d like to know them. I just did this calculation now and don’t have any emotional connection to it. I’m always happy to learn something new.
Nor do I, Wendell. But note that I included all transfer payments. Most calculations of ‘federal assistance’ leave out social security, medicare and such. So I’d bet that’s where our difference in result comes from.
You’re also only including personal income in your calculation which seems an odd choice. There’s a lot more to the economy and GDP than just personal income. You’re discounting corporate income, for one thing, and I can assure you it exists and should count.
Fuck, and I didn’t even think to include in ‘assistance’ corporate tax incentives and offsets as well as grants to non-profits and economic development concerns.
Hrm.
It’s a LOT, OK?
The OP doesn’t differentiate between short-term and long-term results.
Obviously, there would be a great deal of short-term disruption. But long-term? I don’t know if it would make any difference at all to the overall economy. People are not static. Money would find some other way of flowing.
and let them starve so that those who are fat can get fatter.
Would it, though?
This hasn’t always been the case. We don’t have to look very hard to find cases where this isn’t the case. And that’s not just the US but other countries with examples from the last 100 years alone.
Generally the historical way of getting money flowing has been some sort of government intervention (even if that intervention is a war rather than a direct change in economic policy), which is the opposite, in spirit, of what is asked in the OP.
I’m not sure the premise is that the money wouldn’t be spent is correct. If the government stopped taxing me to pay for entitlement programs I’d spend it on a new car or a vacation (creating auto industry and hospitality jobs) rather than burn it or stuff it in my mattress.
“Government assistance” doesn’t just arrive by magic. We PAID into our support programs for many decades. Killing-off those programs is up-front THEFT. That’s the modern corporate program: privatize and confiscate. What would be the immediate result of a ‘benefit’ cutoff? If I were a pol who’d voted for that, I’d hire a large security squad, because starving masses would want me dead.
The main purpose of government benefits is to prevent uprisings to slaughter the elites.
RioRico is not entirely wrong. Or even mostly.
While I doubt most would now admit to it, I believe a factor in offering social security, disability, welfare and other similar benefits is to prevent a general lefty uprising.
We saw this following the late 1800s and the first Gilded Age (it’s my belief we’re undergoing a second Gilded Age right now). That led to worker insurrection, battles against both public and private police and a general lack of interest in compromise. The end result was increased union participation, the breaking up of the trusts and further steps toward support for the underclass paid for by general taxation.
The problem is that welfare is paid for via income taxes (non-social security and non-medicare welfare that is), and income taxes tend to fall on the wealthy.
So the wealthy would save quite a bit of money, but I don’t know if they’d reinvest it. My understanding is the world already has several trillion in idle capital, what is missing are good investments to put the money into. If the well off saw their income taxes cut, they’d probably just put the money into savings or stock buybacks rather than reinvesting it.
For a program like food stamps, every $1 spent results in ~$1.80 in GDP growth.
I don’t know what the GDP growth is for supply side tax cuts. I am sure its smaller, but I don’t know by how much.
Money transferred to those who are not well-off is spent almost immediately. If it wasn’t transferred, and the taxes to fund it were not levied, less of it would be spent. You might immediately increase your consumption to spend the tax saving, but you are not every taxpayer. The richer the taxpayer is, the less likely they are to spend an increase in net income immediately; a proportion - a growing proportion, as we move up income levels - is saved or invested.
So the short-to-medium term effect of cancelling these programs and the taxes used to fund them (apart from an increase in poverty and hardship, of course) would be an overall reduction in consumption and an increase in accumulation and investment. This would tend to have a depressive effect on jobs and income.
I sometimes note that von Bismarck created the first modern social support system, not for love of peasants and proles, but to steal an issue from the socialists, produce a healthier and more productive nation to pay the Kaiser more taxes, and prevent uprisings. Can’t let the aristos be slaughtered, now can we?
Another point: taxes and fees sequester money that would otherwise flood the economy, increasing inflation and poverty. I can did up a cite for that if asked.
AFAIK food stamps have always been an agribiz subsidy; any public benefit is secondary.
Wow, that’s way the heck more than i even thought…I get food stamps aka EBT Medi-Cal (state of ca) and medicare (fed govt) and SSA(originally SSI ) from my dad’s fat retirement … mom signed me up for SSI originally and everything else was "well since the rest is available for you weve signed ya up for it … enjoy! Oh and I pay my aunt for helping me via the IHSS program …Reagan did something great for me as governor of ca …(about the only thing)
note this discussion started in a bar because we were watching the news (bartender needed to know how to dress her kid for school the next day)and they were discussing the small raise SSI and SSA gets every year and some blowhard who was working of the 3rd pitcher of the cheap piss of the day was "just get rid of al those programs make the lazy sobs get a job …
Corporate welfare elimination would also gravely impact economy, as would elimination of farm subsidies.
While average income is what you say, median income, which is more important here is (from here) much lower.
Thus besides the good point that the rich would save much of the extra income, not spend it, the impact would be greater on the poor, who also would be getting less of a break.
As for savings versus investing, the article in the Times today about FedEx’s 0 taxes notes that business investment now is less than that before the tax cut.
Behavioral economists note that people have different buckets for money. A lump sum payment goes into a different bucket than an increase in income. They’ve shown that someone like a house painter, when he works in his free time for money, puts the money in a different bucket than the one for his job pay, even if he is doing the same thing.
In 2009 Obama reduced Social Security payments instead of sending checks as a boost to the economy for this very reason. The money showed up in the paycheck and got spent more than the Bush checks which got saved and which didn’t boost the economy as much.
That’s true about the median income, but it’s not possible to use it in calculations like mine. The average income (i.e., the mean income) is total amount of income divided by number of people earning an income. That says that total amount of income is the number of people earning an income times the average (i.e., the mean) income. Using the median wouldn’t work in that equation. The median may be more important for some things, but it doesn’t work in that equation.
Stopping assistance doesn’t necessarily mean that money is now no longer collected as taxes. It means either a reduction of the deficit (meaning the economy shrinks by the entire amount), it gets spent elsewhere by the government (depending on where, and so the multipliers involved, it might mean shrinking or expanding the government, probably the former) or in fact taxes get reduced. If it’s a straight reduction in tax rates, people like me end up with much of it, and I won’t spend it all - the economy shrinks. Other changes to the tax code would have possibly different effects.
Not factored in is the effect on the then former recipients. If some of them, out of necessity, enter the workforce or become entrepreneurs, that expands the economy. I don’t believe a whole lot of people don’t work and receive assistance because of choice, so possibly the only work or enterprise open to them is illegal or otherwise undesirable, making this economic expansion sub-optimal.