In most counties you visit in the U.S., residents are getting at least a quarter of their income from government programs, according to a new study. That’s up significantly since the 1970s.
“Not long ago, money from government programs like Social Security or SNAP – known as transfers –featured minimally in Americans’ personal income,” said the research from Washington D.C.-based investment firm EIG Partners, which conducted the study. It said that, back in the 70s, only residents in areas with chronic economic distress depended on transfers for meaningful shares of income.
At the start of that decade, transfers made up 8% of total personal income. Now, they account for 18%. A line chart based on the EIG data published by Axios also showed that the share of counties whose residents receive at least 25% of income from government rose from 0.7% in 1970 to a peak of 67.5% in 2021.
What’s changed? According to EIG, a few things. In particular, an aging population, rising healthcare costs and stagnant wage growth have contributed to the skyrocketing dependence on government programs funded by taxpayer contributions. Apart from these programs, the two other main sources of income are work and investments.
“In 2022, Americans received $3.8 trillion in transfer income from the government,” said EIG. “If that were split evenly across the entire U.S. population, it would be about $11,500 per person.”
More than half of that total (56%) went to Medicare and Social Security, programs designed for older Americans. This makes sense, based on the rapidly shifting demographics of the country. EIG noted that the increase in Americans age 65 and older increased by 17 million from 2010 to 2022 to one in every six Americans, compared to one in 10 in 1970. During the 10-year period from 2010 to 2020, the over-65 population increased more than it had in the previous 50 years combined.
As people get older, they are less likely to be in the workforce full time. They may also have increased medical costs, and all health-related safety net programs are becoming more expensive, per EIG.
Last month, Audacy covered research that found the U.S. spends more than other similar countries on healthcare in part due to a complicated system that includes public and private plans. Even though Americans spend more on healthcare than other countries, it has worse health outcomes.
Another issue contributing to the increase in reliance on government programs is the slow income growth in the U.S. Over the past 50 years, per capita transfer growth has increased three times more than income.
EIG found that “programs focused on alleviating poverty… remain relatively small sources of transfer income,” though stalling wages could also mean stalling employee contributions into the nation’s Social Security coffers.
Axios said that high-paying jobs tend to be concentrated “in a small number of wealthy hubs,” leaving areas such as Appalachia, the tribal Southwest, the rural South and the northern Great Lakes to struggle. Even though a majority of the counties that rely on government support the most are rural and vote Republican, lawmakers on the right have recently proposed raising the retirement age for Social Security, which would block some people from benefitting in the program, as NBC News reported.
“Many of those counties are located in key battleground states this year: Government aid makes up a significant share of income for about 70% of counties in Michigan, Georgia and North Carolina,” Axios said.
EIG also said that areas that are “older, more rural, and less wealthy tend to be significantly reliant on transfers,” while “metropolitan hubs, affluent suburbs and exurbs, and high-income, high-productivity farming and mining communities remain minimally reliant on transfer income to power their local economies.”
It gave two comparisons to illustrate the nuances of government reliance. One was Sarasota, Fla., and Roscommon, Mich. Both towns have older populations, but older people with savings and investment income tend to move to Sarasota, while older people reliant on Social Security tend to stay in Roscommon. The other comparison was Delaware County, Ind., an area that became stagnant as its manufacturing industry declined in the 2000s, and Seattle, Wash., which has benefitted from a diverse economy.
“Not since the aftermath of World War II has the US confronted a fiscal situation as troubling as the one it now faces,” said EIG. “Back then, it could count on favorable demographics to grow the economy back to fiscal sustainability.”
Today, things look a bit different. Going forward, the over 65 population is expected to grow by 20 million, compared to just the mere 6 million expected growth of the working population.
“The country is on a collision course with politically fraught trade-offs. Significantly raising taxes and dramatically cutting transfer programs could choke off the very economic activity that finances transfers and immiserate the lives of people who depend on them,” EIG warned.
The firm did offer some insight into how the U.S. could turn around its reliance on government programs. Economic growth – the kind that would make it easier for Americans to start and sustain families – is essential, it said.
In early September, Audacy reported on Bank of America’s plan to increase its minimum wage to $25 by next year. At the same time, the federal minimum wage has remained stagnant for 15 years and today, it has 30% less purchasing power than when it was set at just $7.25 per hour, according to the Center for American Progress. Even though productivity has increased in the U.S., the minimum wage purchasing power has actually decreased steadily since 1968, said Indeed.
“Faster economic growth is thus essential to regaining the path back to fiscal health. To restore the nation’s demographic vitality, a growth agenda should prioritize making it easier to start and sustain families,” said EIG. “Other ideas include investments in research and innovation, an expansive and better designed immigration policy, and tax and regulatory policies that foster economic dynamism and participation in the workforce.”