America’s Destructive Welfare State

 By Dan Mitchell.

"If I want to educate someone about the harmful impact of America’s counterproductive welfare state, there are several items I like to share.

A complex and crowded flowchart of various Washington programs to redistribute money.

• A chart showing that poverty stopped falling when politicians declared a “war on poverty.”
• A cartoon capturing how redistribution programs undermine incentives for self-sufficiency.
• A chart showing the explosive growth of social welfare spending in Western nations.
• A chart showing how redistribution programs create very high implicit tax rates. 

I augment those visuals with other analysis, such as my two-part series (here and here) on the right and wrong way to reduce poverty (Hint: the ultimate goal should be reducing dependency).

And I just read a sobering article by John Goodman that I’ll add to my list. Here are two shocking/depressing findings that he shared.

First, in many cases, households that mooch get more money than households that work.

…the bottom fifth of households in 2017 had an average (after tax and after transfer) income of $33,653 per person. …The per capita income of second fifth in 2017 was $29,497; and for the middle fifth it was $32,574. Those with the least earned income had more actual total income than those in the next two higher quintiles! The average household in the bottom fifth received 14 percent more income than the average second-fifth household and 3.3 percent more than the average middle-income household.

As you might predict, people respond to incentives. John reports that the excessive welfare state has greatly undermined incentives to be productive.

Since the War on Poverty started in 1965, the labor force participation of the bottom one-fifth of households has dropped from 70 percent to 36 percent. As a group, this one-fifth now receive more than 90 percent of their income from government. For this group, our welfare system has substituted in-kind benefits for labor market income.

These two sets of numbers are horrific. We basically have a system that tells people they are chumps if they work. Their reward for work is to pay taxes.

But if they become wards of the state, they can play video games all day and get lots of freebies.

That’s a recipe to destroy societal capital.

P.S. For readers who want some international evidence, I have a three-part series (here, here, and here) on how the welfare state is hurting European nations.

P.P.S. The Biden Administration wants to lie about the definition of poverty. Which may or may not be worse than their celebration of dependency.

P.P.P.S. Here’s a ranking of which states exacerbate the problem of redistribution."