The number of Americans who depend on government aid for a big part of their income has gone up dramatically, according to a new study by the centrist think tank Economic Innovation Group (EIG).
The study found that about 53% of Americans now get at least a quarter of their income from government programs. This is called “transfer income.” Social Security, Medicare, Medicaid, the earned income tax credit, Pell funds, and other payments started during the COVID-19 pandemic are all part of this.
In 1970, on the other hand, only about 1% of the U.S. population relied on government aid in this way, and most of those 1% lived in the country’s poorest places. The main reasons for this sharp rise in dependence, according to the study, are an aging population, rising healthcare costs, and slow wage growth that hasn’t kept up with the cost of living.
The rise in dependance on Social Security
The country’s fast aging population is one of the main things driving this trend. About one in ten Americans in 1970 were 65 or older. These days, that number has grown to one in six. As more people reach retirement age, this change in the population has caused Social Security payouts to go up by a large amount.
In addition, Medicare costs have gone up because more medical care is needed by older people. As the cost of health care goes up, this program has become an important way for many older Americans to get help, making them even more dependent on government funds.
Along with rising healthcare costs and the effects of getting older, wages have not been growing at all. Over the past few decades, many workers’ income from jobs or perks has not grown fast enough to keep up with rising costs of living.
As wages have stayed the same, government transfers have become a bigger part of family income, forcing more people to depend on these programs to keep up a basic standard of living.
A very clear example of this change can be seen in the manufacturing sector, which has gone down a lot in the last few decades. Many working-class neighborhoods have been destroyed by the loss of jobs and companies that shut down. One example is Delaware County, Indiana, which has the city of Muncie in it.
Once a center for manufacturing, the area has seen a sharp drop in industrial jobs, making the local workers more and more reliant on government aid. The average salary in the county right now is about $31,000 a year, with $14,000 coming from government income. It’s clear that the loss of well-paying manufacturing jobs has had a huge effect on towns all over the country.
On the other hand, places that have welcomed the growth of the information economy have done much better. Seattle is in King County, Washington, which is a great example of this shift toward tech and knowledge-based businesses.
People in the county make an average of $105,000 a year, but only about $8,500 of that comes from government handouts. This gap shows how different the places are that have been able to adapt to the new economy and the places that have been left behind.
The growing reliance on government programs like Medicare and Social Security is also making the federal debt grow. A big chunk of government money is now going to these programs.
As more Americans retire and healthcare costs keep going up, the federal budget will be put under even more stress. The EIG study stresses that this trend could make the country’s money problems worse if it is not stopped.
The study says, “The country is on a collision course with politically fraught trade-offs.” “Raising taxes a lot and cutting transfer programs even more could kill the economic activity that pays for transfers and make the lives of people who depend on them poor.”
Policymakers have a hard time finding the right mix between helping people in need and making sure that these programs can continue to run without losing money.
To deal with this growing problem, the study calls for policies that boost faster economic growth and support population renewal. The study says that putting in place pro-growth strategies that can increase jobs and wages is the best way to make people less dependent on government aid.
The country could depend less on handouts and help more people and families become financially independent by creating more jobs and raising incomes from work and investments.
The EIG believes that the best long-term answer will be to both boost economic growth and deal with population issues. This way, the country will not have to rely more and more on government programs.
The goal is to give communities across the country hope and economic opportunities again so that the U.S. can continue to do well without relying too much on government income.