The Fiscal Costs of Nonpayers

Tax Foundation ^ | September 19, 2012 | Will Freeland, William McBride, and Ed Gerrish

[reaganaut1]

...

Our analysis finds that in the post-WWII era, there is a very strong connection between nonpayers and federal government transfer payments. Transfer payments are programs that give direct assistance to people such as unemployment insurance, Social Security, Medicare, Medicaid, and food stamps.

In fact, our model suggests that a 1 percentage point increase in the share of tax filers who are nonpayers (from 40 percent to 41 percent, for example) is associated with a $10.6 billion per year increase in transfer payments. Since the number of nonpayers has increased by 20 percentage points over the last two decades, our model indicates that in 2010 alone, over $213 billion in transfer payments are associated with this two decade increase in nonpayers.

Further, analysis suggests that the increase in nonpayers may also be affecting other aspects of public finances such as the national debt. This is not surprising given that the growth of transfer payments has been a key driver of the growth of the national debt.

We find that for every 1 percentage point increase in the share of tax filers who are nonpayers, the debt as a percentage of GDP increases by 0.704 percentage points. For example, if the percentage of nonpayers increased from 40 percent to 41 percent, we would expect the debt held by the public to increase from, say, 70 percent of GDP to 70.704 percent of GDP. This means that the 20 percentage point increase in the share of nonpayers over the last 20 years has increased the debt ratio by 14 percentage points.

This research suggests that we are now seeing the fiscal cost of dropping millions of Americans from the income tax rolls in the form of record levels of federal transfer spending and national debt.

[July4]

I guess this is how Communism takes hold as the Republic breathes its last.

[Grampa Dave]

Nonpayers = PC version of moochers.

[sickoflibs]

RE :”In fact, our model suggests that a 1 percentage point increase in the share of tax filers who are nonpayers (from 40 percent to 41 percent, for example) is associated with a $10.6 billion per year increase in transfer payments. Since the number of nonpayers has increased by 20 percentage points over the last two decades, our model indicates that in 2010 alone, over $213 billion in transfer payments are associated with this two decade increase in nonpayers.
Further, analysis suggests that the increase in nonpayers may also be affecting other aspects of public finances such as the national debt. This is not surprising given that the growth of transfer payments has been a key driver of the growth of the national debt. “

This is hell of a problem becauses traditionally it was Republicans who in tax cuts removed these people from the Fed income tax payees. That was partly political but also partly to encourage them to work rather than stay on welfare, Of course EITC is the working poor man's/woman's welfare.

But once they pay no Federal income tax the only thing left to offer them for a vote short other peoples money is a cut in their entitlement taxes, which is in abstract sense other peoples money as they will still get the entitlements.

[griswold3]

‘traditionally it was Republicans who in tax cuts removed these people from the Fed income tax payees’

Good point. Seems the ‘compromise’ through the years has brought us here. The ‘Starve the Beast’ methodology backfired when the opposition never intended to cut spending in any manner, shape or form. Cue alexander de tocqueville.

[sickoflibs]

RE :”The ‘Starve the Beast’ methodology backfired when the opposition never intended to cut spending in any manner, shape or form.”

The starve the beast methodology had some rationale as late as the 1990s Clinton era when Clinton himself was scared that deficits would scare the bond market and resulting interest rates would crash the economy. It was thought in those days that the Fed printing money could not control long term interest rates.

In the modern era with globalization and the US currency being treated as the safe harbor the Fed appears to be able to print as money as it wants keeping interest rates low regardless of the size of the national debt.

To make an analogy, in the past if you borrowed too much money they would take your car you needed to survive, but now there is no obvious credit limit so you are free to borrow more than you could pay back in a thousand lifetimes.

Eventually inflation will catcgh up with us but then the compassionate gubmnent can just give some voters more money to compensate for it.

[stephenjohnbanker]

We will have serious inflation on health care, food and fuel, but NOT real estate this time around.

[Grampa Dave]

[sanjuanbob]

These are possibly the 5 best sentences you’ll ever read and

all applicable to this:

1. You cannot legislate the poor into prosperity by legislating

the wealthy out of prosperity.

2. What one person receives without working for, another

person must work for without receiving.

3. The government cannot give to anybody anything that the

government does not first take from somebody else.

4. You cannot multiply wealth by dividing it!

5. When half of the people get the idea that they do not have

to work because the other half is going to take care of them,

and when the other half gets the idea that it does no good to

work because somebody else is going to get what they work for,

that is the beginning of the end of any nation.

[sickoflibs]

Here ya go:

Lindsey: Fed Virtually Funding the Entire Deficit ($85 Billion a Day) - Video CNBC via RealClearMarkets ^ | 9/26/2012 | Lawrence Lindsey - Squawk Box

Cant starve the beast anymore, the Fed is feeding it.