Stimulus Lifts Government Transfers
Saturday, July 04, 2009 at 11:13 AM EDT
A few weeks ago, I posted some charts showing that Americans
are increasingly reliant on government transfers as a source of income.
Fridayâ€™s data on personal
income for May confirmed that the trend is continuing. Government transfers
made up a record 18% of personal income in May:
In interpreting this
increase, itâ€™s important to keep several points in mind:
- Mayâ€™s increase was driven entirely by the recent stimulus act. The
act provided for one-time payments of $250 to a range of Americans who are
beneficiaries of various other programs, including Social Security, SSI, and
veteransâ€™ benefits. Those payments more than account for the increase in
transfers from 16.9% of personal income in April to 18.0% in May.
- Since those payments were temporary, the ratio will likely decline in the
future. Thatâ€™s assuming, of course, that other economic changes
donâ€™t move it in the other direction.
- The increasing importance of transfers reflects both short-run developments
and long-run trends. In the past year, the importance of transfers has grown
because of (a) weakness in other forms of income, (b) the natural expansion of
transfers due to economic weakness (e.g., increases in unemployment insurance
payments), and (c) policies to expand benefits (e.g., as an attempt at
stimulus). Over the longer run, however, the growth of transfers has been
driven by the expansion of entitlement programs.
To get a handle on these different factors, itâ€™s useful to
three different types of transfer payments: Old-age, survivors, disability, and
health insurance (which I have labeled Social Security and Health Insurance),
unemployment benefits, and other (which includes food stamps, welfare, and
things, this chart shows:
- Unemployment benefits have grown rapidly in recent months. They remain
small, however, relative to other transfer programs.
- Other transfers spiked in May because of the special payments. A similar
spike occurred in mid-2008 due to tax rebates from the first stimulus; a
portion of those rebates were characterized as transfer payments (rather than
tax reductions) because they went to individuals who didnâ€™t have any tax
- Transfer payments for Social Security and health insurance have grown the
most over the past few decades.
That last factor is, of course, the reason that our long-run budget
situation looks so grim.
This article originally appeared on Donald Marron.