New Report Shows Growth of the Welfare State Has Fueled Long-Term Declines in the Labor Force

A massive labor shortage continues to grip the nation and hold back our economic recovery. With countless pandemic and policy factors influencing the shortage, there’s a heated debate over what’s keeping so many workers out of the labor force. But a new study confirms that the growth of the welfare state is playing a massive role—and that this trend began long before the pandemic. 

Published by experts on the Republican side of the Senate Joint Economic Committee, the analysis reports, “the U.S. has witnessed an unprecedented rise in disconnected prime-age workers over time.” As shown in the graph below, the men’s labor force participation rate has fallen from more than 97 percent in 1955 to 89 percent prior to the pandemic, while the women’s labor force participation rate has declined in recent decades as well.

Image Credit: JEC Republicans

What’s causing this decline? Well, the study examines popular explanations like displacement from immigration and technological advancements and finds that they do not account for this drastic drop. Rather, it suggests that the biggest factor is that “many would-be workers are voluntarily disconnected from work, and government programs and policies have likely made work less attractive for these Americans.”

There has been tremendous growth in the welfare state over these decades. Per the committee, in 1998 about 20 percent of working-age Americans living in households between the 20th and 50th income percentiles were benefiting from government programs. As of 2014, that figure was up to 30 percent.   

Indeed the study notes that “only 12 percent of inactive, prime-age, able-bodied men said they wanted a job or were open to work.” Why? It doesn’t take a genius to figure out that the widespread availability of robust welfare benefits is a key part of the explanation.  

“A significant body of empirical evidence suggests that government transfers— especially those without work requirements—tend to lower employment,” the study reports. “For example, labor force participation and earnings fall after receiving housing assistance, losing Medicaid coverage increases employment and gaining the coverage can reduce it, and the introduction of the food stamp program in the 1960s and 1970s decreased employment significantly.” 

We can’t overlook these troubling findings. Yes, there’s no doubt that the pandemic and pandemic-specific policies are contributing to the particularly acute labor shortage currently facing our economy. But in the bigger picture, our long-term labor problems are driven particularly by a bloated welfare system that disincentives work and traps people in poverty.  

Yet some are learning the opposite lessons. With their $3.5+ trillion spending plan, progressives in Congress are trying to make the welfare state even bigger! This is bad for the economy and actually bad for the supposed beneficiaries, too—the anti-poverty, mental, emotional, health, and social benefits of being employed are widely and extensively documented. Policies should incentivize employment; not discourage it.  

“As the number of Americans who receive government assistance has grown, more Americans have voluntarily left their jobs,” Republican Senator Mike Lee commented in light of this report. “Congress’ plan to spend an additional $3.5 trillion to provide households with new subsidies and fewer incentives to work would only make things worse." 

Indeed it would. Hopefully, this new study injects some much-needed insight into the ongoing conversation about labor shortages. In the big picture, our labor participation problems can’t be fixed without serious rollbacks of the welfare state.

WATCH: TikTok’s 5 Worst $15 Minimum Wage Arguments (DEBUNKED)

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Brad Polumbo

Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Policy Correspondent at the Foundation for Economic Education.

This article was originally published on FEE.org. Read the original article.

New Report Shows Growth of the Welfare State Has Fueled Long-Term Declines in the Labor Force

‘It’s Easy Money’: Nigerian Scammer Laughs about Huge Sums Stolen from COVID Welfare Programs in Bombshell Interview

State unemployment agencies aren’t especially responsible stewards of taxpayer dollars even in the best of times. Yet when the COVID-19 crisis and government lockdowns put tens of millions of Americans out of work, Congress responded by pouring more taxpayer money into state-level unemployment systems.

The federal legislation enormously increased weekly payouts and expanded unemployment benefits to many new classes of workers, with little in the way of verification or qualification requirements. This welfare expansion was just reauthorized in the second major COVID-19 spending package, which Congress passed in mid-December. Sadly, lawmakers didn’t bother to address the runaway fraud that had plagued the first round of COVID relief efforts.

An astonishing $36 billion has been lost to fraud in pandemic unemployment benefits, the Department of Labor reports. To put this figure in context, the entire unemployment system only paid out about $26 billion in 2019.

That’s right: Bureaucrats lost to fraud more than is usually paid out in an entire year. The $36 billion lost—and that’s just the fraud we know about—amounts to an average of roughly $1,894 lost per current unemployment beneficiary. (What would we think of a private system that lost nearly $2,000 for each customer served?)

These figures alone are horrifying, but a new bombshell interview with one of the countless international scammers getting rich off our relief efforts makes it painfully clear just how carelessly Congress is throwing around our money.

A Nigerian student named Mayowa spoke to USA Today and, on the condition of partial anonymity, openly admitted to scamming $50,000 from the US pandemic welfare system so far.

All he had to do was make a list of real people and then search through available databases of hacked information for their Social Security numbers and birthdates.

“In most states that information is all it takes to file for unemployment,” USA Today’s Nick Penzenstadler says. ”Even when state applications require additional verification, a little more money spent on sites such as FamilyTreeNow and TruthFinder provides answers – your mother’s maiden name, where you were born, your high school mascot.”

It doesn’t always work, of course. But Mayowa told the newspaper his success rate is pretty high—about one success in every six claim attempts.

“Once we have that information, it’s over,” Mayowa told reporters. “It’s easy money.”

Government bureaucrats were caught flat-footed, and the flood of money being rushed out the door in the name of emergency meant more vulnerabilities than ever. It took many states more than six months to add verification requirements and partially stem the flow. Just to use one state as an example, Washington state usually identifies a few dozen fraudsters in a year—now, it has identified more than 122,000 since March.

“When you consider the policy factors accelerating benefits and getting them to the neediest people and the expanded $600 available … we had the perfect storm,” Washington Employment Security Department Commissioner Suzi Levine said. “[Scammers] have been lying in wait for this moment.”

It’s certainly true that the COVID-19 pandemic and the sweeping big government response are unprecedented in our lifetimes. So, the runaway unemployment fraud and rampant fraud in other COVID relief programs are indeed an extreme example. But do not make the mistake of thinking that they are uncharacteristic of big-government programs by any stretch.

As Austrian economist Ludwig von Mises explained, bureaucracy, incompetence, and waste are inherent to government administration by its very nature.

In contrast, private businesses are driven to efficiency by the profit motive. A company-wide system that is broken and bleeding money is, in short order, fixed—or if it cannot be, that company will soon be driven out of business by more efficient competitors. This influences the behavior, not only of the business’s owners, but of its hired managers, and thus all its employees.

“Within a business concern [the management of expenses] can be left without hesitation to the discretion of the responsible local manager,” Mises explained in his book Bureaucracy. “He will not spend more than necessary because it is, as it were, his money; if he wastes the concern's money, he jeopardizes the branch's profit and thereby indirectly hurts his own interests.”

Fundamentally, in private enterprise, everyone involved has skin in the game. So, while mistakes still certainly happen, there’s a strong incentive to correct them and push for as much efficiency as is possible.

In government the opposite is true.

“It is another matter with the local chief of a government agency,” Mises explained. “In public administration there is no connection between revenue and expenditure. In public administration there is no market price for achievements.”

It’s not that government bureaucrats want to waste taxpayer money. But the lack of proper incentives breeds incompetence, and all government agencies have a monopoly on what they do.

If a state’s unemployment agency does a poor job, it doesn’t go out of business. Neither the profits of the “owners” nor the salaries of the workers are on the line. So, it’s much less likely that anyone will even face firing or disciplinary action for mistakes in government. (Especially thanks to the strength of public sector unions).

Need proof? Only a few state administrators have been fired throughout this entire national COVID-19 welfare fraud scandal. It’s simply unthinkable that this level of scandal and waste could happen in private enterprise without wide-scale firings and other forms of accountability.

This inherent inefficiency is a feature of government bureaucracy, not a bug.

Yes, this particular problem may fade, if expanded pandemic unemployment relief programs are eventually allowed to expire. But waste, fraud, and inefficiency will plague big government efforts long after the COVID-19 pandemic subsides.

RELATED: Why You Should Expect More Stimulus Fraud Coming Soon.

Brad Polumbo

Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Opinion Editor at the Foundation for Economic Education.

This article was originally published on FEE.org. Read the original article.

‘It’s Easy Money’: Nigerian Scammer Laughs about Huge Sums Stolen from COVID Welfare Programs in Bombshell Interview

Europe Can Only Afford Its Welfare State by Heavily Taxing the Non-Wealthy

I argued last year that leftists should be nice to rich people because upper-income taxpayers finance the vast majority of the American welfare state according to government data. Needless to say, my comment about being “nice” was somewhat sarcastic. But I was making a serious point about the United States having a very “progressive” fiscal system. The top-20 percent basically pay for government and those in the bottom half are net recipients of that involuntary largesse.

I also pointed out a huge difference between the United States and Europe. Governments on the other side of the Atlantic impose much higher burdens on lower-income and middle-class taxpayers.

Here’s some of what I wrote:

…the big difference between the United States and Europe is not taxes on the rich. We both impose similar tax burden on high-income taxpayers, though Europeans are more likely to collect revenue from the rich with higher income tax rates and the U.S. gets a greater share of revenue from upper-income taxpayers with double taxation on interest, dividends, and capital gains (we also have a very punitive corporate tax system, though it doesn’t collect that much revenue). The real difference between America and Europe is that America has a far lower tax burden on lower- and middle-income taxpayers. Tax rates in Europe, particularly the top rate, tend to take effect at much lower levels of income. European governments all levy onerous value-added taxes that raise costs for all consumers. Payroll tax burdens in many European nations are significantly higher than in the United States.

So does this mean European politicians don’t like ordinary people?

I could make a snarky comment about the attitudes of the political elite, but I’ll resist that temptation and instead point out that taxes in Europe are much higher for the simple reason that government is much bigger and that means some segment of the population has to surrender more of its income.

But here’s the $64,000 question that we want to investigate today: Why are European governments pillaging lower-income and middle-class taxpayers instead of going after the “evil rich” and “greedy corporations”?

Part of the answer is that there aren’t enough rich people to finance big government. But the most important factor is the Laffer Curve. Politicians can impose higher tax rates on upper-income taxpayers and companies, but that doesn’t necessarily translate into higher revenue. Simply stated, well-to-do taxpayers have considerable ability to earn less income and/or report less income when tax burdens increase, and they do the opposite when tax burdens decrease.

That’s true in the United States, and it’s true in European countries such as Sweden, France, Russia, Denmark, and the United Kingdom.

So even if politicians want to fleece upper-income taxpayers, that’s not a successful method of generating a lot of revenue.

Which is why a shift from a medium-sized welfare state (such as what exists in the United States) to a large-sized welfare state (common in Europe) means huge tax increases on ordinary taxpayers.

I’ve made this point before, but now I have some additional evidence thanks to a new report from the Organization for Economic Cooperation and Development. The Paris-based bureaucracy is probably my least-favorite international organization because of its advocacy for statism, but it collects and publishes lots of useful statistics about fiscal policy in the industrialized world.

And here are three charts from the new study that tell a very persuasive story (and a depressing story for ordinary taxpayers).

First, we can see how the average tax burden has increased substantially over the past 50 years.



And who is paying all that additional money to politicians?

As you can see from this second chart, income tax revenues have become a less-important source of revenue over time while social insurance taxes (mostly paid by lower-income and middle-class taxpayers) have become a more-important source of revenue.



The third chart shows the evolution of the value-added tax burden. This levy takes a big bite out of the paychecks of ordinary people and the rate keeps climbing over time (and if we looked just at European governments that are part of the OECD, the numbers are even more depressing).



Now let’s put this data in context.

The United States now has a medium-sized welfare state financed mostly by upper-income taxpayers.

But because of dramatic demographic changes, we are doomed to have a large-sized welfare state. At least that’s what will happen if we don’t reform entitlement programs.

And if we leave policy on auto-pilot and there’s a substantial increase in the burden of government spending, it’s simply a matter of time before politicians figure out new ways of taking more money from lower-income and middle-class taxpayers.

Yes, they may also impose higher rates on “rich” taxpayers, but that will be mostly for symbolic purposes since those levies won’t generate substantial revenue.

Last but not least, don’t forget that European fiscal burdens will mean anemic European economic performance.

Reprinted from Intentional Liberty

Daniel J. Mitchell


Daniel J. Mitchell is a Washington-based economist who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.

This article was originally published on FEE.org. Read the original article.

How Middle-Class Europeans Fare Under the Welfare State

According to progressives like Bernie Sanders, European nations have wonderfully generous welfare states financed by high tax rates on the rich.

They’re partly right. There are very large welfare states in Europe (though I wouldn’t use “wonderfully” and “generous” to describe systems that have caused economic stagnation and high levels of unemployment).

But they’re wrong about how those welfare states are financed. Yes, tax rates on the rich are onerous, but not that much higher than in the United States. Instead, the big difference between America and Europe is that ordinary people pay much higher taxes on the other side of the Atlantic.

The US Has the Most “Progressive” Tax System

Indeed, I’ve previously cited Tax Foundation data showing that the United States arguably has the most “progressive” tax system in the developed world. Not because we tax the rich more, but simply because we impose comparatively modest burdens on everyone else.

And now we have some new evidence making the same point. Joseph Sternberg of the Wall Street Journal has some very sobering data on how the German tax system imposes a heavy weight on poor and middle-income taxpayers.

Europeans believe their tax codes are highly progressive, giving lower earners a break while levying significant proportions of the income of higher earners and corporations to fund generous social benefits. But that progressivity holds true only for direct taxes on personal and corporate income. Indirect taxes, such as the value-added tax on consumption and social-security taxes (disguised as “contributions”), are a different matter. The VAT disproportionately affects lower earners, who spend a higher proportion of their incomes. And social taxes tend to kick in at lower income levels than income taxes, and extract a higher and more uniform proportion of income. …if you look at the proportion of gross household income paid in all forms of tax, the rate varies by only 25 points. The lowest-earning 5% of households pay roughly 27% of their income in various taxes—mainly VAT—while a household in the 85th income percentile pays total taxes of around 52%, mostly in social-security taxes that amount to nearly double the income-tax bill.

Here’s a chart the WSJ included with the editorial.

As you can see, high payroll taxes and the value-added tax are a very costly combination.

And the rest of Europe is similar to Germany.

…Germany is not unique. The way German total revenues are split among income taxes, social taxes and the consumption tax is in line with the rest of Western Europe, as are its tax rates, according to OECD data. If other countries are more progressive than Germany, it’s only because Germany applies its second-highest marginal income-tax rate of 42% at a lower level of income than most.

Percent of Economic Output

Speaking of the OECD, here’s the bureaucracy’s data on the burden of government spending.

Germany is in the middle of the pack, with the public sector consuming 44 percent of economic output (Finland edges out France and Greece for the dubious honor of having the most expensive government).

The overall burden of the public sector is far too high in the United States, but we’re actually on the “low” side by OECD standards.

According to the data, total government spending “only” consumes 37.7 percent of America’s GDP. Only Ireland, Switzerland, and Latvia have better numbers (though my friend Constantin Gurdgiev explains we should be cautious about Irish economic data).

But I’m digressing. The point I want to emphasize is that punitive taxes on poor and middle-income taxpayers are unavoidable once politicians decide to impose a large welfare state.

Which is why I’m so inflexibly hostile to any tax increase, especially a value-added tax (or anything close to a VAT, such as the BAT) that would vacuum up huge amounts of money from the general population. Simply stated, politicians in Washington will have a hard time financing a bigger burden of government if they can only target the rich.

Sternberg makes the same point in his column.

Tax cuts have emerged as an issue ahead of Germany’s national election next month, with both major parties promising various timid tinkers… Not gonna happen. The VAT and social taxes are too important to the modern welfare state. The great lie is that there are a) enough “rich people,” b) who are rich enough, that c) taxing their incomes heavily enough can pay for generous health benefits and an old-age pension at 65. None of those propositions are true, and the third is especially wrong in an era of globally mobile capital and labor. That leaves the lower and middle classes, and taxes concealed in price tags or dolled up as “insurance contributions” to obscure exactly how much voters are paying for the privilege of their welfare states. …reform of the indirect taxes that impose such a drag on European economies awaits a more serious discussion about the proper role of the state overall.

Exactly.

There’s no feasible way to ease the burden on ordinary German taxpayers (or regular people in other European nations) unless there are sweeping reforms to reduce the welfare state.

And the moral of the story for Americans is that we better enact genuine entitlement reform if we don’t want to suffer the same fate.

P.S. If you don’t like German data, for whatever reason, I wrote last year about Belgium and made the same point about how a big welfare state necessarily means a bad tax system.

P.P.S. By the way, even the OECD admitted that European nations would grow faster if the burden of government was reduced.

Reprinted from International Liberty.

Daniel J. Mitchell


Daniel J. Mitchell is a senior fellow at the Cato Institute who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.

This article was originally published on FEE.org. Read the original article.

European Welfare States Are Frantic to Breed More Taxpayers

European Welfare States Are Frantic to Breed More Taxpayers

Recently I read a very peculiar news item reporting that the Spanish government has appointed what the media are calling a “Sex Tsar.” It is officially a “commissioner for the demographic challenge,” whose job is to persuade the people of Spain to have more sex, and, by extension, more children.

 

The Spanish are not alone. In 2016, the Italian government ran a “Fertility Day” campaign to get people to have more babies. The Swedish government has initiated a study into the sex lives of its citizens, to find ways to increase the amount of sex Swedes have.

If that was all there was to the story, we could chalk it up to politicians being their usual ridiculous selves and have a good laugh about it. But this nonsense has serious economic causes and potentially far-reaching consequences.

The Ponzi Welfare State




In each of the three cases, the main reason governments wanted more children was to save the welfare state. The welfare state is the biggest Ponzi scheme on Earth, as the great economist Milton Friedman explained.

As long as there are more taxpayers (young, working people) than those who are receiving the benefits of the welfare state, the whole operation runs fine.

The problem starts when people have fewer babies, as in Europe. This will result in a larger number of old people depending on the government, which will have to tax a smaller and smaller working population to finance the benefits. Without new fools to con, the Ponzi scheme will collapse. Even Paul Krugman understands this elementary fact about welfare schemes like Social Security.

Immigrants could compensate for the shrinking population in Europe and increase the tax base for governments. But the governments have closed borders to refugees from Syria and other countries (due to political compulsions), making immigration more difficult precisely when they need more people. If they cannot get more taxpayers through migration, the only alternative is to get their citizens to have more children.

Precedent in History

In 1807, the United States Congress outlawed the import of slaves, economically akin to the immigration controls in modern Europe. Because slave masters could not get more slaves from Africa, they established “breeding farms,” as Ned and Constance Sublette describe in their book, “The American Slave Coast: A History of the Slave-Breeding Industry.”

On these breeding farms, there were far more women and children than men. Slaves were encouraged to have stable family lives. As economic historian and Nobel laureate Robert Fogel explained in his book “Time on the Cross: The Economics of American Slavery,” most slaves were sold with their entire families, or, when a slave wished to separate from his family, separately. In fact, as distinguished economists Thomas Sowell and Walter Williams have pointed out so often, more black children were raised in two-parent families during slavery than are today.

Was this because slave owners had any love for their slaves? Not by any stretch of the imagination. The slave owners simply wanted to maximize profits by encouraging their slaves to have more children. They gave rewards to women for having children, similar to the tax benefits or payments offered by a welfare state. Just as politicians can stay in the welfare business only if citizens have more and more children, the slave owners could stay in business only if slaves had more and more children. They knew that, and acted purely in their selfish interests – just like politicians.

Next, Fogel pointed out that living standards for slaves in the South were comparable to those of free workers in industry. The master ensured the welfare of his slaves, just like the modern welfare state does with its citizens.

There is yet another striking parallel between the welfare state and slavery. People such as George Washington and Thomas Jefferson believed that slavery was a terrible thing – Jefferson called it a “great political and moral evil” – yet they continued to hold slaves. They justified it by saying slaves were not capable of taking care of themselves. In the event that they set the slaves free, they argued, the slaves would fall into destitution and suffering.

This argument made by Washington and Jefferson is exactly the same as that made by proponents of a welfare state. History is bound to repeat itself if people don’t pay attention the first time around.

People in countries with a growing population, such as the US, or developing countries like India, should learn the lesson before it is too late, and take steps to roll back the welfare state while there is still time, or else end up slaves to the state.

Jairaj Devadiga

Jairaj Devadiga is an economist who illustrates the importance of property rights and freedom through some interesting real-world cases.

This article was originally published on FEE.org. Read the original article.

Record 20% of Households on Food Stamps in 2013

Record 20% of Households on Food Stamps in 2013

Study: More Than Half a Trillion Dollars Spent on Welfare But Poverty Levels Unaffected

“[S]ince President Obama took office [in January 2009], federal welfare spending has increased by 41 percent, more than $193 billion per year,” the study says.

Federal welfare spending in fiscal year 2011 totaled $668 billion, spread out over 126 programs, while the poverty rate that remains high at 15.1 percent, roughly where it was in 1965, when President Johnson declared a federal War on Poverty.

via megalextoria.com