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Government assistance payments reach unprecedented levels

(National review)

Democrats are poised to take the share of Americans receiving government assistance to unprecedented levels.

The $ 3.5 trillion in reconciliation legislation currently under consideration by the White House and Congress would transform economic relations between American citizens and the government. This is conventional wisdom. Even the New York Times calls it a “vast expansion of the social safety net”. Although they are not mistaken, they miss the forest for the trees. The dependence of individuals in the United States on government transfers has already tended to increase, and sometimes even suddenly, over the past two decades. The legislation would therefore not amount so much to a revolution as to the codification of one which is already well underway.

The graph above shows government transfers per capita as a share of median personal income between 1974 and 2021. As you can see, until the 21st century, this measure of individual dependence on economic support from the government has fluctuated within a range of about 10-15%. . When Congress passed the Biparty Welfare Reform Act of 1996 in response to public support to limit the scope of federal financial assistance, per capita government transfers represented 14.3% of median personal income. After the adoption of the social protection reform, it then followed a downward trend (as expected) reaching a low of 12.7% in 2000. After 2000, however, it recovered before declining. ‘Accelerate following the 2008 financial crisis. Although this growth partially reversed during the recovery, partial is the key word here. And it was from this new plateau (or something approaching a plateau) that he leapt further, reaching the 29% he reached in 2020 – more than double what he was. in 1996, when Congress and a Democratic White House enacted legislation to do essentially the opposite of what is being proposed now.

As the graph shows, if enacted, the legislation would likely result in an America in which per capita government transfers represent 23% of its median personal income. Calculating the 2021 estimate assumes that median personal income increases in 2021 by the 6% that the OECD now estimates U.S. GDP will increase this year. It also assumes that transfers in 2021 would return to pre-COVID 2019 levels in the absence of the legislation; if they would have increased even without the legislation, then the estimate shown for 2021 would be too low. The graph assumes the law will be passed. The effect on the estimated 2021 transfer contributions, as shown in the graph, is calculated by removing about $ 619 billion in non-transfer spending for things like immigrant resettlement and the “weatherization” of the program. reconciliation of 3.5 trillion dollars. It also assumes that the $ 2.9 trillion in transfers are implemented consistently over five years, the timeframe now expected for many provisions of the law. Certainly, the likelihood that the bill will pass at the end of the year, if at all, means that its effect on transfers in 2021 will be much less than what I have shown. My estimate for 2021 is intended to illustrate the magnitude of the proposal. As you can see, the estimated 23% of median personal income in transfers per capita would exceed – during an economic period expansion – the peak reached at the height of the Great Recession in 2010.

For many of those pushing for this legislation, an increase in federal transfers of this historic size is the gist: it would represent a big step forward (to borrow a phrase) in their efforts to transform the economic relationship between the US government and the United States. citizens. Their critics will agree that this is certainly a jump. But they would say the jump is over a cliff. If the legislation is passed, the United States will indeed be very close to becoming something akin to a European social democracy, a momentous change that deserves more discussion than an acceleration of the legislative process under the auspices of the European Union. recovery after a pandemic would deliver.

Joseph W. Sullivan served on the White House Council of Economic Advisers as a special advisor to the president, as well as an economist, from 2017 to 2019.

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