September 12, 2021 Reading Time: 14 minutes

The very nature of modern democratic politics is that it is seen as a means and a mechanism to transfer income to some in society at others’ expense. Virtually every politician runs for office on a campaign platform that promises to extend concrete and specific benefits to various selected groups through the taxing or regulating powers of government.

This means that those not designated as deserving of such politically bestowed benefits, or not to the same extent, must be the ones in society who will bear the burden of providing the means needed for the more fortunate segments of the voting electorate. In other words, under present circumstances, the political process, almost inescapably, produces two groups of people in society: winners and losers in the quest for political plunder.  

This is usually hidden from view through the rhetoric used to rationalize or justify interventionist and welfare statist policies. For instance, since Joe Biden’s inauguration as president of the United States in January 2021, he and those around him have insisted that the spending and regulatory agenda advocated by them and the Democratic Party leadership in Congress is an expression of a “mandate” given to them by the American people to radically extend the size and scope of government.

In the 2020 presidential election, out of about 159.63 million votes cast, Joe Biden received 81.28 million to Donald Trump’s 74.22 million. This gave Biden 51.3 percent of the vote to Trump’s 46.9 percent. Why the discrepancy? Because 1.72 million votes went to Jo Jorgensen, the Libertarian Party Candidate, or 1.72 percent of the total, with the remaining votes going to a number of lesser candidates who also ran for the presidency.

In other words, out of that total of 159.63 million votes in 2020 for the president of the United States, 78.36 million were not cast for Joe Biden, or 48.4 percent of all those submitting a ballot in the election. Considering that, no doubt, at least some of those who voted for Biden did so more as a vote against Trump than as a vote for all that Biden said he wanted to do, the actual number of Americans voting actively and enthusiastically to give Biden a “mandate” for his “big government” agenda would have to be considered barely more than 50 percent.

That is to say, almost half of the American voting public did not like or want what Joe Biden was selling. If the election had gone the other way, with that 51.3 percent of the vote going to Trump instead of Biden, with his reelection to the presidency, “the Donald” would, surely, have declared that he was the one with the mandate to pursue his own version of the interventionist-welfare state, even if nearly half the country had voted against him.

Government Spending Equals Government Taxing and Borrowing

Since government has no resources of its own other than what it either taxes or borrows, there are those in society who are supplying the means for the government to transfer income and benefits to the others. A common number often is that 47 percent of all the people in the United States receive one form or another of government-redistributed wealth at any moment in time. It may be in the form of a retired person’s Social Security check, or Medicare and Medicaid health coverage, or federal unemployment insurance, or farm subsidies, or subsidized housing, or food stamps or other direct welfare payments, or federal funding for any of the different levels of education, or government contracts for everything from office paper clips to military aircraft, or money to the arts or for science research, or maintenance and repair of the federal highway system, or covering the cost of a vaccine against the Coronavirus. 

In the new Federal 2022 fiscal year that begins on October 1, 2021, the Congressional Budget Office (CBO) estimates that the government will spend at least $5.544 trillion, with revenues of $3.390 trillion, leaving a budget deficit of $1.153 trillion. (The Biden Administration’s own estimates are that the government will spend even more in fiscal year 2022, with expenditures of $5.707 trillion, with lower collected taxes of $3.988 trillion, leaving a larger budget deficit of $1.719 trillion.)

Just taking the CBO’s estimates as a baseline, out of the total 2022 government expenditures, $3.589 trillion will be on mandatory “entitlement” spending – Social Security, Medicare and Medicaid, and the like, which will represent 65 percent of all federal dollars spent. “Discretionary” spending will come to $1.610 trillion, or 29 percent of all federal expenditures. And net interest on the national debt will be $306 billion, or 5 percent of the total government spending.

The famous 19th century French classical liberal, Frederic Bastiat (1801-1850), once referred to the state as the “great fiction” by which everyone tries to live at everyone else’s expense. What Bastiat was attempting to bring out is that the more the government becomes an intricate machine that pumps revenues out of private individuals’ incomes and enterprises to merely, then, turn around and pump out all those tax revenues in multitudes of directions back into the economy in the form of all these “mandatory” and “discretionary” expenditures, the more it becomes increasingly difficult to always know whether one has been a net taxpayer or a net tax receiver.

Government Employees as Net Tax Receivers

Among those who surely can be classified in one of these two categories are all those who work in some capacity for the government. There are approximately 14.2 million local government employees and another 5.5 million state government employees around the country. The federal government directly employs 2.1 million civilian workers, along with an additional 1.4 million active members of the U.S. armed forces. In total, about 23.2 million people are employed by all levels of government.

Each and every one of them may honestly say, “But, I pay taxes, too.” And that is in almost all cases true. But it nonetheless remains equally true that they are net recipients of tax dollars collected by the local, state, and federal government for whom they work. According to the Office of Personnel Management in Washington, D. C., the average civilian federal employee earns $90,500 a year.

For someone who is single, that income level puts them in the 24 percent federal income tax bracket. So, that federal employee would be paying about $21,700 in income taxes to Uncle Sam. But they still have a net income after paying these federal taxes of $68,800. And that is the amount of income they take home as the net tax redistribution from other members of the society to them (minus, of course, other federal and any state and local taxes they may also pay). That puts them in the category of net tax recipient.

Defense-Related Private Enterprises as Net Tax Recipients

There are a number of private companies that can be said to be clear net tax recipients through government contracts, and this applies especially to the defense-related industry. For example, in 2017, the Lockheed Martin Corporation earned total revenues of $53.8 billion, out of which $50.7 billion were U.S. government defense contracts, for a wide variety of military hardware. Lockheed Martin certainly lives at the government trough, with nearly 95 percent of its business coming from taxpayers via the federal government.

The Boeing Company had total revenues in that same year of $101.1 billion, of which $23.4 billion were federal government defense contracts. With combined federal and state corporate taxes averaging at around 25 percent, basically, the government contracts paid for the taxes the company owed on total revenues of $101.1 billion, leaving it free and clear with its remaining after-tax income of about $75 billion. 

Another defense contractor, Raytheon Company had total revenues of $27.1 billion in 2017, with $14.7 billion of it in federal government contracts. In other words, over 54 percent of all of its business was with Uncle Sam. Raytheon paid about $6.77 billion in taxes to the government that year. That made it a net tax recipient in the amount of about $8 billion.

The Huntington Ingalls Industries, Inc., is the only company in the world that builds U.S. government aircraft carriers and one of two companies that makes nuclear submarines. In 2017, it had government contracts worth $7.2 billion out of total revenues of $8.2 billion, or about 88 percent of all its business. It, too, clearly was a net tax recipient.

Booz Allen Hamilton Holding Corporation contracts with the government for work with the U.S. intelligence agencies, including the National Security Agency (NSA), the Department of Homeland Security, and the U.S. military. Seventy percent of their employees have federal government security clearances. In 2017, the company had total revenues of $6.2 billion, of which $4.1 billion were these government contracts, or over 66 percent of all their revenues. With taxes totaling around $1.55 billion, that year, the business was a net tax recipient to the tune of at least $2.5 billion.

The CBO projects that in fiscal year 2022, total defense spending will come to more than $750 billion, or 13.5 percent of all federal expenditures. This kind of money makes it in the self-interest of the private enterprises mentioned above, and a good number of others, to lobby for a maintenance of America’s global military interventionism. How else can expenditures of this magnitude, representing such large portions of the revenues of these firms, be preserved and increased looking to the years ahead?

A limited government, non-interventionist foreign policy stance would, clearly, require a fraction of what is being spent and will continue to be spent. The CBO estimates that between fiscal years 2022 and 2031; that is, over the next decade, total defense spending cumulatively will come to around $8.3 trillion. With that much tax-funded contracts to feed off, it is not too surprising that both the relevant private sector interests and the swarm of bureaucrats living off the continuation of America’s political, economic, and military outreach around the world, would find it intolerable for America to downsize and end its self-appointed role as global paternalist.

The Impending Bankruptcy of Social Security

One of the biggest confusions about who is a net taxpayer or a net tax receiver is Social Security. A large number of Americans, it seems, still believe that when they start receiving their Social Security benefits upon retirement, they are simply “getting back their own money.” The Social Security Trust Fund operates, in fact, on a pay-as-you-go basis; that is, taxes collected from the current working members of the labor force are paid to current Social Security recipients. There is no mythical “lockbox” containing a particular individual’s lifetime tax payments into the system, just waiting to be paid out upon retirement.

Up until 2009, Social Security taxes collected exceeded benefits paid out to eligible retirees. But from 2010 on, the reverse has been the case, with payments out to those eligible retirees more than Social Security tax revenues collected. Prior to 2010, any “surpluses” into the Social Security system were “invested” in U.S. government securities to partly fund the federal government’s deficits for each of those years. In return, an IOU was deposited from the Treasury, promising to pay those sums back to the Social Security Administration.

Thus, another myth perpetuated in too many minds was that the Social Security taxpayer’s money was being “wisely invested” to make that person’s compulsory nest egg grow over time. (I say, “compulsory,” because, as virtually all of us understand, none of us have had a choice about whether we want to pay into the government’s pension system or not.)

All of those “surpluses” have been frittered away on funding whatever it was each and every year that government wanted to spend money on in excess of taxes collected during that time. View it as equivalent to telling yourself that this part of your income is “retirement savings,” but actually using it for some of your current consumption expenditures, rather than in productive future-oriented investments that would earn you a market-based interest income down the road. Instead, it is just “gone.”

Social Security Running Out of Treasury Securities to Cash In

What has enabled the Social Security Administration to cover its legal benefit obligations to eligible retirees since 2010 has been a drawing down on those federal government IOUs. That is, the U.S. Treasury has had to either use general taxes collected or borrowed money to “pay back” what it “owes” to the Social Security System. That is, one branch of the federal government settling its bookkeeping “obligations” to another branch.

In the latest report issued by the Social Security Trust Fund (August 31, 2021), the Trustees of the system said that at the beginning of 2021, the Trust Fund had “reserves” (U.S. Treasuries held on its ledger book) equal to $2.9 trillion. By the end of 2033, those “reserves” will have decreased to $1.34 trillion. And in 2034, these “reserves” will have been all used up in making good on full payments to eligible retirees above what had been collected in Social Security taxes that year. Under the Social Security Administration statute, the system can only pay out to recipients what is either collected in taxes during the same period, or from “cashing in” those Treasury securities.

With its reserves depleted, the actual amount of Social Security taxes collected from members of the active labor force, starting in 2034, will only permit about 76 percent of promised benefits to be paid to eligible retirees. In other words, if you had been receiving a Social Security check of $1,000 each month, from this date on, your monthly check would decrease to about $760.

Several reports in 2020 estimated that somewhere between 12 percent to 20 percent of retirees rely upon their Social Security checks for 90 percent of their monthly income. For others, Social Security checks are combined with other retirement sources of income. But whatever the case may be for particular individuals, given the ideology and the politics of our time, what is likely to happen between now and 2033 is either an increase in Social Security payroll taxes, a later eligibility age to fully qualify for a Social Security check, some modification in the benefits schedule, or a combination of these. The retired are too much of a potent voting bloc, especially in a variety of “key” states, for the politicians and bureaucrats managing the system to let it go bankrupt, in terms of not being able to meet its full monthly obligations under the prevailing legislation. 

Beyond the pale of current American political discussion is the need to privatize the Social Security system. And not just to “privatize” in the sense that the government designates how much of a person’s income must be regularly allocated for their future retirement, among a set of politically approved private investment funds. No, I mean the necessity of getting government out of the retirement business completely, leaving all such matters to the choices of each individual about how he should plan for and act upon his anticipated financial requirements in his older years. (See my article, “Abolishing Social Security – Through Real Privatization”.)

There is No Collective “We,” Only Choosing Individuals

Politicians and ideologues like to say that Social Security is something “we owe to ourselves.” The word  “we” is being used in the double meaning of “we” as both taxpayer and recipient in the mythical collectivist sense of a common group entity that “our” money is taken out of “our” collective left pocket when “we” are younger and working and paid back into “our” collective right pocket when “we” are older and retired; and also the meaning that “we” as collective community owe something to all its members, as an “entitlement” or a “right” as a human being.

The fact is, there is no such “we” in either sense, I would argue. There are only all of us as distinct and different individuals. Each of us has a portion of the money income we have earned coercively taken from us based on the notion that other individuals in government and among the policy designers and implementers know far better how each of us should plan and implement our respective futures.

Social Security is an intergenerational transfer of income from those current working individuals to those individuals presently retired and receiving benefits from the system. It has been a system that taxes the younger, working age members of the population to cover the legislated costs of meeting the promised obligation to those mostly no longer in the workforce. The system seemed to work fine, just as long as there were a significantly greater number of people paying into the Social Security system than those having reached eligible retirement age and collecting this redistributed transfer from their employed fellow Americans.

Social Security’s Demographics of Disaster

But it has been a slow-motion financial disaster in the making due to the demographic trends in the country. Basically, as the decades have gone by, the number of working age people relative to those retired and collecting Social Security has been decreasing. In 1955, there were 8.6 employed workers paying into the Social Security system for each recipient retiree. By 1965, that had fallen to 4 employed workers for each recipient. In 2001, that number had decreased to 3.4 workers paying into the system per retiree. And in 2020, there were about 2.7 workers taxed for the Social Security system for each recipient.

In 1955, for every $100 that a Social Security recipient received, each of those in the working population at that time had to pay taxes to cover $11.62 of it. (Though, actually, each working member of American society was paying more than that, which is how the “surpluses” accumulated that could be “invested” in covering part of the government’s annual deficit spending.)

In July 2021, there were over 68 million Americans receiving Social Security checks, including both those retired and those receiving disability benefits from the government, and other supplementary programs. Average monthly total benefits come to about $1,435 per recipient. That means that each of the working members of the labor force would have to be taxed as their “contribution” to the Social Security system, at around $530 or more per month to presently keep the system afloat. Though employees and employers, combined, pay the equivalent of 6.4 percent of each worker’s monthly salary, the monies collected do not add up to cover that amount. Hence, the Social Security system is in deficit.

Portion of Social Security Taxes to Partly Cover Deficit Spending

For decades, the working age population was taxed to both cover the Social Security retirement benefits of those no longer in the workforce, plus the Social Security surpluses before 2010 that were paid by those employed to cover part of the government’s general annual budget deficits. Hence, that portion of the deficit so covered was, in fact, indirectly paid for with Social Security taxes, and not by those in the financial markets choosing (wisely or not) to lend money to the federal government.

This was a de facto, hidden general tax which today still stands at equal to almost $3 trillion “owed” to Social Security by the rest of the federal government, which means the working age population will have to be taxed to pay this off; or through more borrowing by the government, which means promises to collect even more taxes in the future to pay that off all that, as well. 

John Maynard Keynes was infamous for saying at one time that in the long run we are all dead. The implication being that the longer-run consequences of government policies are far, far less important than the shorter-run benefits from various “activist” policies in the here and now. Well, for the Social Security Administration the long run is only about a dozen years away, according to the government’s own trustees of the system.

The “we” of the Social Security system will very soon be starkly obvious to be “us” and “them.” One of these being the members of the society who will have to bear noticeable tax and other related burdens, for the others to continue to receive the fully promised government-redistributed retirement sums – plus the built-in increases in payments to cover rises in the cost-of-living. 

Division of Society into Peacefully Producing and Politically Plundering

In 1816 and 1817, the French classical liberal, Charles Dunoyer (1786-1862) wrote a series of articles in the journal, Le Censeur Europeen, in which he distinguished two groups of people in society. One of them he called the “nation of industrious peoples,” composed of,

“Farmers, merchants, manufacturers, and scholars, the industrious people of all classes and all nations. In the other, there are the major portions of all the old and new aristocracies of Europe: office holders and professional soldiers, the ambitious do-nothings of all ranks and all nations who demand to be enriched and advanced at the expense of those who labor.

“The aim of the first is to extirpate from Europe the three scourges of war, despotism, and monopoly, to ensure that men of every nation may freely exercise their labors, and, finally, to establish forms of government most able to guarantee these advantages at the least cost. The unique object of the second group is to exercise power, to exercise it with the greatest possible safety and profit, and, thus, to maintain war, despotism and monopoly.”

In other words, society is composed of one set of people who work and save and who produce and exchange, and another set of people who wish to politically acquire and consume what others have saved and produced. The latter group acquires the wealth produced by those others through political means – taxation, regulation, government-bestowed privileges that interfere with the natural course of free market processes.

The source of injustices and exploitation is the same in every country. In modern times, they are the welfare statists, the economic interventionists, and the proponents of every form of collectivism. The problem in modern society is that, as Bastiat said, with almost everyone trying to use the state to live off others, the line between those who are net taxpayers and those who are net tax receivers is either so camouflaged with collectivist and paternalist rhetoric that the obviousness of some who are clearly living off the state is not understood and seen.

Or, in other cases, such as Social Security, both the rhetoric and the reality of the system has for decades made it difficult to sort out who is a net gainer from a net loser, due to the soothing political language that we are all in it together and we all win by doing our collective part in first paying while working and then collecting when retired.

But whether clearly seen, or whether only “through a glass darkly,” or whether still not seen at all, modern democratic politics has reduced American society, as elsewhere, into an invidious system of mutual plunder that threatens and undermines the understanding and desire for a society of individual liberty, personal responsibility, and freedom of association and trade in the broadest sense, both inside and outside of the marketplace.

Richard M. Ebeling

Richard M. Ebeling

Richard M. Ebeling, an AIER Senior Fellow, is the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel, in Charleston, South Carolina.

Ebeling lived on AIER’s campus from 2008 to 2009.

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