Essay on Government Spending

People should be treated indifferently regardless of their wealth and social standings. Yet, in reality, societies have experienced economical inequalities due to pay scales, tax brackets, and education level. A research study on 23 developed countries and 50 states of the US has shown that countries with higher degree of inequality tend to have higher rates of health, social problems and lower rates of social welfare.

To resolve such inequality, the U. S government has consistently intervened by alleviating poverty and redistributing income in different forms of transfer payments such as welfare, Medicare, Social Security and employer-provided health insurance. Despite the good intentions, these programs, which involved large spending, haven’t been entirely effective in helping the poor. Therefore, even though the poor might suffer from an extensive economic inequality, the government cannot intervene by levying these transfer payments to focus on the equal outcome rather than personal freedom.

Many studies have shown that transfer payments didn’t help to redistribute income. According to Dwight R. Lee, only 25% of $500 billion spent yearly on public assistance and social insurance programs were distributed through Medicaid, food stamps, Social Security, etc and 75% were allocated regardless of need. This suggests that a large portion of financial aid from the government went to those who were not in need. These programs were therefore proven ineffective since their means were to help the poor but the poor didn’t actually receive the exact benefits the taxpayers gave up.

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One of the reasons was that these transfer payments’ policy wasn’t specific enough, so their main purpose of feeding only the poor hasn’t been accomplished. In addition, when taxpayers were taken money away to help the poor, their personal freedom was constrained because they couldn’t do whatever they want on their earnings completely, even in helping the poor themselves. More importantly, many poor people receive no more than the average income people and the transfers they get are worth less to them.

Out of the 25% payment transferred that were means-tested, only about 30% was in cash and the remaining 70% came in the form of in-kind transfers such as food stamps, housing, and medical care. These in-kind transfers are less preferable to the poor as cash provides more spending flexibility. For every dollar the government spends, only 25 cents are transferred to the poor. Out of those 25 cents, only 75% or 19 cents is the actual cash the poor can receive and use for whatever they need. Even though the poor still receive a cash portion through these transfer payments, the cash amount is not enough to satisfy their daily need.

Those programs don’t help the poor as much as expected and as a result, the poor are still poor and the income inequality still remains unresolved. Also, it is disappointing to taxpayers because they can no longer use their own money to help the poor, and the money they give up doesn’t maximize the poor’s utility either. Some basic supporting arguments for transfer programs are that they help to reduce income inequality and social stratification. Particularly, the mathematical function explains this argument: W= min (Y1, Y2, …, Yn).

This function states that society’s utility (W) is dependent on the least of individual utility, which is the poorest in terms of income. Thus, the poor have to be prioritized when income is distributed until all are equal. This is totally reasonable since a society would be fair only if the bottom individuals were also well taken care of. The advocates of these transfer payments also argue that transfer payments even though can’t help to redistribute income equally, at least they help the poor become better and thus, social welfare would increase as a whole.

However, they probably never pay attention to the result. They probably haven’t asked themselves this question: is the money actually transferred from the rich to the poor? Many studies have shown a striking fact that most government transfers are not from the rich to the poor. Instead, government takes from the relatively unorganized parties, like tax payers and consumers, and gives to elderly, sugar farmers, and steel producers, considered as the relatively organized parties.

As mentioned above, only 25% of all the money spent yearly on public assistance and social insurance programs were distributed through Medicaid, food stamps, Social Security, and 75% were allocated regardless of need. People tend to believe that whatever tax amount they pay, either federal or state or social security tax, the money would be fully transferred to the poor. But they have failed to recognize whether the transfer payments go to the poor or people who don’t need it. They end up losing their spending flexibility to only help the poor a little.

Would people still see the necessity of these programs if they realize that the poor don’t get as much as they really need? Overall, the redistribution of income is important because inequality can only cause complex issues for society as a whole. But the most effective way of income redistribution remains controversial. While most people believe transfer programs are helpful because they help to balance income between the rich and the poor, I believe this is not an ultimate solution for such a long-standing issue.

The statistics are self-explanatory; these programs didn’t result in a good outcome for the poor and the poor were still unsatisfied after all. It’s the time for us to make changes, whether to alternate these programs or totally get rid of them so that taxpayers no longer have to pay a large sum of money to help only a little to those in need.

References

1. Richard G. Wilkinson and Kate Pickett, The Spirit Level: Why More Equal Societies Almost Always Do Better
2. Dwight R. Lee, Redistribution of Income

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