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As US tax rates drop, government's reach grows
...Slightly over half of all Americans – 52.6 percent – now receive significant income from government programs, according to an analysis by Gary Shilling, an economist in Springfield, N.J. That's up from 49.4 percent in 2000 and far above the 28.3 percent of Americans in 1950. If the trend continues, the percentage could rise within ten years to pass 55 percent, where it stood in 1980 on the eve of President's Reagan's move to scale back the size of government.

That two-decade shrink-the-government trend now appears over, if for no other reason than demographics. The aging baby-boomer generation is poised to receive big payments from Social Security and government healthcare programs.

"New Deal programs persist," despite the Reagan revolution and its aftermath, says James Galbraith, an economist at the University of Texas in Austin. "They persist because they are largely successful and highly popular."

Mr. Shilling's analysis found that about 1 in 5 Americans hold a government job or a job reliant on federal spending. A similar number receive Social Security or a government pension. About 19 million others get food stamps, 2 million get subsidized housing, and 5 million get education grants. For all these categories, Mr. Shilling counted dependents as well as the direct recipients of government income. ...

...Similarly, Shilling predicts that the number of "government beneficiaries," as he defines them, will grow to 60 percent of the US population by 2040 Against this backdrop, many Americans are understandably uneasy about the fiscal path of their politicians....

...For his analysis of government beneficiaries in the US, done last year, Shilling looked at data from 1950 through 2004. His tally was conservative on several fronts – including the care he took to avoid double-counting anyone.

He added up the number of federal, state, and local government workers, plus private sector workers who owe their jobs to government. He then tallied the recipients of transfer payments (like pensions) and a few other substantial programs (like food stamps). And he tacked on the dependents of these direct beneficiaries.

He divided his total by the US population to get a "government beneficiary" ratio for each decade. The ratio has risen, he found, from 28.3 percent in 1950 to a peak of 55.0 percent in 1980. It edged down in 1990 and again in 2000, and now has begun climbing again.

Looking at the big picture, especially entitlements for older Americans, some experts worry about a fiscal undertow.

"I fear that we may be on the path to becoming a decrepit, high-unemployment welfare state," says Daniel Mitchell, an economist at the libertarian Cato Institute in Washington. Economists differ regarding whether, or at what level, a high tax burden acts to dampen economic growth. European nations have shown, for example, that advanced economies can maintain generous social-welfare programs.

But Mr. Mitchell says these nations pay a price of more tepid growth. Sweden, he says, has in recent years dropped off the global Top 10 list for per-capita output. Ireland, by contrast, has kept the government burden low and enjoyed rapid economic growth.