NCPA - National Center for Policy Analysis


March 2, 2010

Without record levels of welfare, unemployment and other government benefits as well as tax cuts last year, the income of U.S. households would have plunged by an astonishing $723 billion -- more than four times the record $167 billion drop reported last month by the Commerce Department, says the Washington Times. 

The figures show the devastating results of the massive job losses last year and indicate that the economic recovery that began last summer is tenuous and has a long way to go before many Americans resume life as normal, according to analysts: 

  • While wages and other job-related income fell by a record $206 billion last year to $7.84 trillion, transfer payments from the government such as unemployment checks and Social Security burgeoned by $231 billion to $2.1 trillion.
  • Last year's unprecedented drop of $256 billion in private wages was more than 40 times larger than the drop in wages during the entire 2001 recession.
  • Meanwhile, the amount of taxes that individual Americans paid plummeted by $325 billion to $2.1 trillion as a result of middle-class tax cuts and because nearly 6 million people were thrown out of work and are no longer paying payroll taxes.  

The tentative revival of consumer spending in the second half of last year appears to have been fed largely by an extraordinary flood of government spending, as growth in other kinds of income has disappeared, says the Times. 

Governmental support was critical in keeping the economy, particularly consumer spending, from completely collapsing during the crisis, says Harm Bandholz, an economist at Unicredit Markets.  He is concerned that much of the economic rebound is a result of government spending rather than a revival of private income and jobs.  That situation is unsustainable, he says, because the government has had to borrow massively to prop up the economy and cannot continue that binge for long. 

Source:  Patrice Hill, "American reliance on government at all-time high," Washington Times, March 1, 2010. 

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