Throughout our history, politicians and pundits have often said “America is at a crossroads.” Sometimes it was true, as in the final convulsive years leading up to the Civil War when we decided to end slavery. New data on personal income, taxes and dependency makes clear that the country is again at a historic crossroad and another form of slavery is the central issue. There are no iron chains involved this time, but dependence on government for economic sustenance is no less an enslavement.
Based on Bureau of Economic Analysis data, USA Today reported Tuesday that the portion of personal income received from private sector paychecks declined to 41.9 percent, its lowest point ever, during the first quarter of 2010. The figure was 44.6 percent in December 2007 at the outset of the current recession and 47.6 percent in the first quarter of 2000. By contrast, the personal income received from government programs climbed to 17.9 percent. Add another 9.8 percent for government employee compensation and 27.7 percent of all personal income is derived from government sources. (The remaining 30.1 percent of personal income results from small-business proprietor profits, farm profits, privately funded pensions, investment sales and dividends, and insurance annuities.)
The problem is that government only redistributes income to dependent individuals after taking it from productive individuals, a process that is reflected in tax returns. As the Tax Foundation recently pointed out, 36 percent of all individual returns in 2008, the most recent year for which data is available, showed no net tax liability. That is the highest level of non-paying tax filers in American history. As recently as 1990, only 21 percent of tax filers paid no levies. The result of this trend is that millions more Americans today pay nothing for the benefits they receive, which are paid for by productive taxpayers.
It’s no surprise then that measures like the Heritage Foundation’s Index of Dependency are curving steeply upward. Preliminary figures from Heritage’s Center for Data Analysis show a 13.9 percent increase for 2009, the biggest single-year increase since 1962. The massive one-year jump in dependency — indexed according to changes in government spending on housing, retirement, health and welfare, etc. — was mainly caused by President Obama’s unprecedented expansion of federal deficit spending and national debt through corporate bailouts and the economic stimulus program. But what happens when productive taxpayers can no longer pay enough taxes to support benefits promised by “progressive” politicians to dependent America? With European welfare states like Greece teetering on this threshold of collapse, our crossroad is whether to continue down the same road or to return to the path that once made us the freest and most prosperous country the world has ever seen.