Is America the Next Welfare State?

Daniel Doherty
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Posted: Jul 25, 2011 3:11 PM

In an article published earlier today in the Wall Street Journal, Arthur C. Brooks – the president of the American Enterprise Institute (AEI) – persuasively argues that the looming debt crisis is not a partisan struggle between Democrats and Republicans, but a moral crisis between statism and the free enterprise system. Below is the most salient excerpt from the piece:

Consider a few facts. The Bureau of Economic Analysis tells us that total government spending at all levels has risen to 37% of gross domestic product today from 27% in 1960—and is set to reach 50% by 2038. The Tax Foundation reports that between 1986 and 2008, the share of federal income taxes paid by the top 5% of earners has risen to 59% from 43%. Between 1986 and 2009, the percentage of Americans who pay zero or negative federal income taxes has increased to 51% from 18.5%. And all this is accompanied by an increase in our national debt to 100% of GDP today from 42% in 1980.

Where will it all lead? Some despairing souls have concluded there are really only two scenarios. In one, we finally hit a tipping point where so few people actually pay for their share of the growing government that a majority become completely invested in the social welfare state, which stabilizes at some very high level of taxation and government social spending. (Think Sweden.)

In the other scenario, our welfare state slowly collapses under its weight, and we get some kind of permanent austerity after the rest of the world finally comprehends the depth of our national spending disorder and stops lending us money at low interest rates. (Think Greece.)

Either way, both options look bleak. If we continue on our current path – and history tells us we are going in the wrong direction – America will become a welfare state. But, in a nation where the rich bear an increasingly disproportionate amount of the tax burden – and more than half of Americans do not pay any federal income taxes whatsoever – can we really expect a different outcome?

Increasing government revenues by levying higher taxes on America's wealthiest individuals – as President Obama proposes – will only foster resentment and create more inequities between the social classes. The rich will continue to foot America's bills while the middle and lower classes become more reliant on the charity of government.

This is not the road to prosperity. What we need is a fairer tax code and a significant reduction in government deficit spending that places loads of debt on the backs of future generations. While these policies have worked in the past as temporary fixes to our economic woes, they are no longer acceptable or feasible in the years ahead.

If we want to change the status quo, however, the battle will not be easy. Mr. Brooks suggests it will take at least a decade of vigorous debate to sway public opinion enough to implement the changes necessary to take back America. But, I believe, there is no better cause worth fighting for – especially when the American way of life hangs in the balance.