Improving Our Standard of Living (Wattpad Edition)

Chapter 25: Welfare

Welfare is money and other benefits that a government gives its citizens, especially those that are poor. Examples include food stamps, public housing, public education, public healthcare, etc.

Many social programs aren't considered welfare. But as I explained earlier, almost everything funded by the government is a type of income redistribution. That's because the richest 10% or so of the population pays the bulk of total tax revenue. In the United States, people that earn over a quarter of a million dollars per year account for just 2.4% of all tax returns, but they pay 50% of the nation's revenue according to the Pew Research Center [1].

Sometimes poorer individuals pay a higher percentage of their income in taxes than wealthier people do. But a small percentage of revenue from a rich person is much more money in total dollars than a high percentage of revenue from a poor person. For this reason, the wealthiest 10% in any given country almost always pays the bulk of taxes in total revenue no matter how low their tax rates are. Therefore, most public spending is a form of income redistribution. Government programs are mostly paid for by high-income earners, but they primarily benefit the general population and the poor.

The big exception is corporate welfare—subsidies and tax breaks for billionaires and their corporations. That's income redistribution too. The bad kind. Corporate welfare gives even more money to the people that already have too much of the nation's income to begin with. Poverty goes up, and the market becomes less competitive because the dominant companies are getting everyone else's tax money.

Despite that exception, most government revenue is used to benefit the general population. Most of it is raised from the richest 10% of the population—particularity the lesser millionaires and medium-sized businesses. They don't receive subsidies and tax breaks to the extent that billionaires and big corporations do.

In other words, it isn't the richest 0.1% of the population (and corporations) that pay the bulk of taxes. It's those under that group but still within the top 10%. This is especially true in highly unequal countries like the US, UK, Israel, Turkey, Mexico, and Brazil. It's less true in more egalitarian nations like those of Scandinavia.

Consider how much more effective taxes would be at reducing inequality if we had a simple, efficient tax system. One that specifically targeted billionaires and the most profitable corporations. If implemented correctly, a high tax burden wouldn't be necessary to reduce the Gini coefficient to 0.25. Like I said earlier, 97% of individuals and firms wouldn't need to be taxed to reduce inequality to a sane level.

Still, despite our imperfect tax systems, most revenue is raised from the wealthiest income brackets.

The wealthy should pay the bulk of taxes since they seize most of the fruits of labor. If the working and middle classes kept most of the value of goods and services they produce, then they would carry most of the tax burden. But much of the wealth they produce is taken from them, and only a small share of it is returned in the form of wages. This pittance isn't enough to fund social programs. That's why the working class doesn't pay much of the taxes. It can't. (This paragraph is more applicable to the grossly unequal countries.)

According to a study by researchers at the University of California, Berkeley, most working-age people that receive one or more forms of welfare have a job [2]. They qualify for benefits like food assistance or Medicaid because their wages are low enough to meet the criteria. In the researchers' words,

When jobs don't pay enough, workers turn to public assistance in order to meet their basic needs. These programs provide vital support to millions of working families whose employers pay less than a liveable wage. At both the state and federal levels, more than half of total spending on the public assistance programs analyzed in this report—Medicaid/CHIP, TANF, EITC, and food stamps—goes to working families.