Monday, July 21, 2014

The balancing act: How to get around welfare

From page A4 | February 10, 2014 |

Nearly 50 years ago, President Lyndon Baines Johnson declared the creation of the Great Society in his State of the Union Speech on Jan. 4, 1965. Its purpose was to end poverty, create a program of civil rights and new health care legislation. But six months before, he already got his War on Poverty bill passed. As a side note, it is ironic it was only a month after his Great Society speech that the pacifist, do-gooder Johnson ordered the continuous bombing of North Vietnam. I guess not everyone deserved a great society.

If we fast forward to today, what are the results of the Great Society, the largest welfare program ever created by mankind? Well after giving away an amount that is equivalent to one half of the national debt which now exceeds $17 trillion, the poverty rate as determined by government numbers is actually higher now than in 1967 by about a percentage point. By population those below the poverty level in the mid-1960s numbered about 25 million and today that number is over 46 million. Even with the attempted slashing of welfare during the Clinton Era, poverty remains about the same and it appears so has welfare, only with different names.

During the period of the mid-1990s welfare became a dirty word. Most working people who pay this country’s bills were fed up with welfare and as a result, welfare benefits were cut significantly. And what happened is that it made no difference in the poverty rate. Poverty did not go up with the cutting of welfare, it went down (Some of that was the result of a growing economy. Let’s see, welfare gets cut, the economy grows and poverty is reduced. Is that a clue?). But in the last few years welfare is back; it is just called by a different name. With respect to food stamps (more welfare), we have more Americans receiving welfare (food stamps) than ever with a reported number of more than 49 million people.

Recently the welfare state was hugely expanded. It is called Obamacare. Except it is not called welfare. It is called a government subsidy. Although the current administration is very reluctant to release the numbers, there are estimates that four out of five of the enrollees under Obamacare are either placed on Medicaid (another form of welfare) or received government welfare checks from you and me to help pay for the new enrollees’ medical premiums. While they are called subsidies, these are nothing more than huge welfare payments. As history demonstrates, more government handouts beget more government handouts. Why should anyone work if someone else will give you money? Why study hard in school if you don’t need a good job. Hey, the government will take care of me.

Right now in Congress there is a push by our president and by the Democrats in Congress to add to the welfare payments from government, but they are not calling it welfare, they are calling it extended unemployment insurance benefits.

Unemployment insurance is just that, insurance with specified benefits based on actuarial study. You pay an insurance premium in case you lose your job. Your unemployment insurance deduction is on your pay stub. But there is an unemployment insurance deduction you never see and it is a federal unemployment insurance tax of 0.6 percent only paid by your employer on your salary. You never see it and you probably didn’t even know about it.

The insurance was designed to pay benefits to those who lose their jobs. The benefits from the insurance are for 26 weeks or until you find a new job, whichever occurs first. If a state is going to extend benefit payments they usually increase the tax, which California has done in the past. Because of all the extensions of benefits (welfare), California’s unemployment insurance fund is over $9 billion in the hole. Extension benefits for California have given some unemployed 37 weeks of welfare payments (payments beyond the 26 weeks paid by insurance). At the height of the recession some unemployed ex-workers received an extra 73 weeks of welfare payments. Those extra welfare payments have expired.

So what does the president want to do? That’s right, create a new class of welfare recipients by re-extending unemployment benefits to 99 weeks, which is nothing more than welfare to a specific class. We have accumulated 50 years of data and the conclusions are clear, welfare does not stop poverty, it creates it. And it is responsible for a whole lot more of society’s ills. What reduces poverty is economic growth, something that hasn’t happened for at least five years and the stagnation is continuing, notwithstanding government deficit spending of about $8 trillion over the same period.

Massive welfare and income redistribution does not reduce income inequality, wealth creation does. More on that later.

Larry Weitzman is a resident of Rescue.



Larry Weitzman



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