The United Welfare States of America

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The United Welfare States of America

America, and much of the Western world, is addicted to welfare. But the cost of government “giveaways” is far higher than you may think.

Give me liberty or give me death!” Patrick Henry said famously. This Founding Father would likely have been shocked at the litany of taxes imposed on the modern citizens of the nation he helped shape. Today’s Americans pay federal and state income tax, state and local sales tax, state and local property tax, federal and state unemployment tax, Social Security tax, Medicare tax and school tax. Some pay capital gains tax, dividend tax, interest tax, luxury tax, gift tax, and utility taxes such as phone tax, which includes state and local tax, state and local surcharge taxes, federal excise tax, universal service fee tax, possibly also minimum usage surcharge tax, and recurring and non-recurring charges tax—whatever that is. They also pay tax for the privilege of getting married, for purchasing a car, for licensing a trailer, for having a water well or septic tank, even for sitting down at home and enjoying a glass of wine with dinner. The list doesn’t come close to ending there.

And Americans are hardly the world’s most heavily taxed people. Many Western nations are burdened with effective tax rates in excess of 30 percent per year. In some countries, such as Sweden and Israel, the rate is closer to 60 percent.

But don’t governments need high taxes to operate? The answer, believe it or not, isno.

An entirely different system requires a simple 10 percent on your annual earnings, 10 percent saved for your family to spend at special celebrations, and then every third year an additional 10 percent to support widows and orphans. No other complex, confusing taxes. No fishing for loopholes. No 16,000-page irs tax code. Efficiency and simplicity!

Which sounds more ideal to you?

This contrasting system, used by the ancient nation of Israel, is called tithing. You can read about it in Leviticus 27:30-33 and Deuteronomy 14:22-29.

Actually, this system was in use long before Israel was founded. It was practiced by Abraham (Genesis 14:20) and Jacob (Genesis 28:20-22). Much later, the apostles and Jesus Christ Himself (Matthew 23:23) followed this system in addition to submitting to Roman taxes (Matthew 22:21).

The results of rejecting this system are clearly evident, historically and currently. The people of ancient Israel rejected God’s simple system of government. They demanded a king and an administrative system like other nations. Consequently, they and their descendants have paid the price ever since. (For documentation regarding where the modern-day descendants of ancient Israel are today, request a free copy of The United States and Britain in Prophecy.)

The Prophet Samuel warned Israel what would come of their request: “This will be the manner of the king that shall reign over you: He will take your sons, and appoint them for himself, for his chariots, and to be his horsemen … and will set them to ear his ground, and to reap his harvest, and to make his instruments of war …. And he will take your daughters to be confectionaries, and to be cooks, and to be bakers. And he will take your fields, and your vineyards, and your oliveyards, even the best of them, and give them to his servants. And he will take the tenth of your seed, and of your vineyards …. And he will take your menservants, and your maidservants, and your goodliest young men, and your asses, and put them to his work. He will take the tenth of your sheep: and ye shall be his servants” (1 Samuel 8:11-17).

Under poor kingship, Israel’s governmental support system quickly grew from simple tithing to the confiscation of property and businesses, the young being drafted into the army, and the people being heavily burdened by the rulers.

Just two generations after rejecting God’s form of administration, taxes and big government under King Solomon were instrumental in causing the northern tribes in Israel to revolt and split from Judah (1 Kings 12). Yet revolution did not solve any problems, because it never fixed the cause of burdensome government and high taxes.

Origins of the Welfare State

America, like many nations, finds itself in a similar situation today. It has become a nation of big government and big taxes. Contrary to the principles set forth by America’s Founding Fathers—principles involving a small, efficient, service-oriented government; principles that helped make the American republic great—America has morphed into a social welfare behemoth.

And truth be told—forget King George, the American Revolution and the Boston Tea Party—today Americans love taxes. In fact, a huge swath of Americans wouldn’t know how to survive without taxes. Shocked? Disagree?

Ask yourself: What is the root cause of taxes and big government? Once you realize what it is, you will see why America is addicted to taxation, and why that is so bad for the nation.

Once voters discovered that they could vote themselves money from the public treasury, the democratic process became one big race to vote for the politicians promising the biggest handouts. Consequently, government finances continue to erode under the pressure of fulfilling the hundreds campaign promises necessary only to buy votes. A similar process occurs when spending bills are sent to the House and Senate. To secure the votes needed to pass legislation, each Congressman and Senator gets his own special spending project included in the bill.

That succinctly sums up why America’s financial condition is deteriorating so quickly.

Both Republicans and Democrats have become parties of big government. The main difference is that some Republicans claim they are for small government, while Democrats are open about their support for increased government and entitlement spending—though even this difference is fast disappearing.

As Wall Street Journal editor Bret Stephens recently wrote, “[W]e have a 40-year history of Republican policy, which says, We’re in favor of what the Democrats are in favor of, only less so.”

The fruits prove this out. Not one administration since 1960 has balanced its budget, and government spending continues to grow unabated. The continually elevating federal debt ceiling, which has become a farce, is breached year after year. In July, Treasury Secretary Henry Paulson warned Congress that unless the cap was raised again, the United States would be unable to pay its bills. The last breach came in March 2006, when Congress was forced to approve an additional $781 billion in federal debt.

Last year, federal, state and local governments spent a massive $4.6 trillion, according to Michael Hodges’s Grandfather Economic Report. The gross domestic product of the U.S. is only $13.1 trillion. That means 35 percent of the economy now depends on government spending.

Government employment has also bloomed, vastly outstripping population growth. Federal, state and local governments now employ one out of every seven workers in the country, according to the Daily Reckoning. That is more than any other sector of the national economy.

In 1946, there were 2.3 state and local government employees per 100 citizens. Today there are 6.4. If government today had the same proportion of employees with respect to its population as it did in 1946, there would be 12.2 million fewer government salaries that current taxpayers would have to pay (Grandfather Economic Report, March 2007).

And to support increased government spending and employment, citizens must work additional hours. This year, “Tax Freedom Day” fell on April 30, which means if you gave the government all your earnings beginning in January, and worked every day including weekends, you wouldn’t have been able to keep a dime until May. One third of the year (120 days) goes just to pay taxes—more than the days spent working for food, clothing and housing combined (105 days). In contrast, back in 1900 you only had to work 22 days to pay your yearly taxes.

If you live in the United Kingdom, or Canada, tax freedom arrived even later—June 1 and June 20, respectively.

Yet, even with all the taxes collected each year, the government continues to spend much more than it takes in, borrowing to make up the difference.

Big Government = Big Spending

In fact, big government coupled with even bigger spending is so rapidly degrading the nation’s finances that David Walker, the government’s top financial auditor, says it will be virtually impossible for the economy to grow fast enough for America to meet its financial obligations. He says the economy would have to grow at double-digit rates for the next 75 years to meet its obligations. During the 1990s, the economy averaged 3.2 percent per year.

So why can’t the spending stop?

Simple: As Alexander Tyler indicated, once people learn that they can vote themselves handouts, politicians learn that the best way to get elected is to promise more than their opponents—more services, more benefits, more spending, whether or not the nation can afford it. Voters punish those who might actually slash spending or reduce government employment by cutting government waste—in essence, anyone supporting financial responsibility. Voters enjoy the short-term benefits of big spending and leave the consequences for the next generation.

There are only two ways government programs can be paid for: additional taxes or increased borrowing—and increased borrowing just means even more taxes in the future.

In other words, every time they vote themselves more government –sponsered gofts, voters indirectly ask for more taxes.

That’s the problem with the American system; as Frédéric Bastiat put it: “Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone.”

Political vote-buying has spiraled out of control. Politicians have promised Social Security and Medicare benefits to Americans to the tune of $70 trillion; that is money America does not have and can’t hope to get. Again, the whole economy is only valued at $13.1 trillion.

Between 78 and 100 million baby boomers are rapidly approaching the date when they can quit their jobs and rely on Social security and Medicare. That’s a growing wave of retirees, nearly the size of Japan, that will not dissipate until around 2027. These people have based their retirement plans on government promises that can’t be kept.

The economic consequences of vote pandering are about to be felt. Yet the price of becoming a welfare state may be much steeper than many realize. Read Part 2 of “The United Welfare States of America” next week to examine another tragic consequence and to see the solution.