Is America Becoming a Welfare State?

Entitlement spending has grown to account for 35 percent of wages and the rate isn’t likely to come down.

“Uncle Sam has been aggressively increasing Americans’ allowance recently,” writes Daniel Indiviglio at The Atlantic. Government entitlement programs have grown to account for 35 percent of wages and the rate isn’t likely to come down even as unemployment decreases.

Government welfare benefits as a percentage of wages and salaries have grown dramatically since the late 1960s, recent analysis from the investment research firm TrimTabs shows.

To bring the ratio of welfare benefits to wages down to pre-recession levels would require either a $2.3 trillion increase in salaries or a $500 billion drop in welfare payments. Neither is likely to happen.

The economy is not growing rapidly enough to generate extraordinary growth in wages and salaries, and the oldest of the 80 million baby boomers turn 65 this year and are eligible for Medicare.

Even when the millions of jobless Americans do find work, Indiviglio knows that the unemployment insurance they leave behind will be picked up by retirees.

The Congressional Budget Office has projected that over the next 25 years, government spending on mandatory health-care programs, including Medicare, Medicaid and insurance subsidies, along with Social Security benefits will increase from roughly 10 percent of GDP this year to about 16 percent.

Already, the three largest of entitlement programs account for a third of federal spending. They will likely swallow up half of the budget by the end of this decade.

With an entitlement crisis looming, the United States are entering “European territory,” as Indiviglio puts it. Before the recession, transfer payments in Britain accounted for 36 percent. Even if the American economy recovers, “the American government’s transfer payment burden will, indeed, begin to resemble that of a European welfare state.”