Our Welfare State Is Failing

As the national debt keeps growing because our government can't seem to spend within its means, one has to ask how much longer our once free enterprise state turned welfare state can support the increasing number of recipients with a shrinking number of taxpayers? Not much longer, if Michael Tanner is right.

According to calculations by Harvard’s Greg Mankiw, based on data from the Office of Management and Budget, roughly 60 percent of Americans receive more in government benefits than they pay in federal taxes. A Tax Foundation study suggests that as many as 70 percent of Americans are net recipients of government largesse. Those numbers will only grow worse in the future.

These numbers should scare us for two reasons. A healthy economy cannot realistically depend on an ever-shrinking number of people to produce the wealth that will be distributed to the larger population. As Margaret Thatcher reputedly said about the problem facing modern welfare states, eventually they “always run out of other people’s money.”

When government funded entitlements take up a bigger piece of the budget every year, the point will be reached when the government itself won't have the funds it needs in order to perform even its constitutionally mandated functions. Almost every penny collected in taxes or borrowed from others will go to paying the entitlements – Social Security, Medicare, Medicaid, Obamacare, Veteran's benefits, government pensions, food stamps, subsidized housing, and hundreds of other 'benefits' the government provides – leaving very little left over to perform the duties the government should be performing. Think it won't happen? Recent history proves otherwise. All one has to do is look at the recent examples of Portugal, Ireland, Italy, Greece, and Spain. All of those countries were forced into taking severe austerity measures because they “ran out of other people's money.” Greece was the most hard hit, with many government-paid entitlements cut back or eliminated entirely. Thousands of government employees lost their jobs because there was no money to pay them. The Greek economy, already on shaky ground, collapsed. Only bailouts by the EU helped them survive. Unlike Greece, we have no one to bail us out.

Some may think all we have to do is increase taxes, but when we've already reached the point of diminishing returns where raising taxes will actually decrease the amount of revenue collected and have a negative effect on the economy. That will push some in government to raise taxes again which will do nothing but fuel the vicious death spiral that ends up with a bankrupt government and an all but moribund economy.

A perfect example of one of the long standing benefits that will have to be curtailed is Social Security. If the taxes collected from workers had been invested in simple interest bearing accounts or mutual funds rather than spent as fast as they came in, Social Security would be solvent and almost every retiree would have a sizable stipend to support them in old age. Because they weren't the money needed to pay benefits in the not too distant future won't be there. I doubt I'll see a penny of the money I've paid into the system since I was 15 years old.

Only a major upheaval in our system will force Congress to make the needed changes to prevent our growing welfare system from collapsing and taking our economy with it. Without those changes a repeat of the situation in Greece will be the best case scenario and Atlas Shrugged will be the worst case. Neither is an attractive outcome.