I need help from you, my loyal readers and followers, to noodle through a question that’s been burning a hole in my brain for a while now. Normally, I try to bring you only fully formed and completely baked brain dribblings; however, this time, I have to bring you something only half baked ‘cause I was a liberal arts major in college and not an economist.
Here’s the basic question: how many unproductive people can an economy support before it collapses under its own weight?
Let me define that term “unproductive” here for a moment since that is the crux of what I want us to discuss here. By “unproductive”, I mean someone whose income is either non-existent or is derived from the taxes paid by those who do not derive their income from taxes.
I’ll give you a moment to let that settle in before hitting you with some numbers.
According to the best information I can find on the internet within the time constraints placed on my life by gainful employment, household tasks and loving my wife, there are approximately 309 million people in the United States right now. The actual number I found was 308.9 million; however, I figured I would round it off to the nearest million for the sake of simplicity. I’m not going to waste time quibbling about how many illegal aliens are in the country right now or whether or not they are included or excluded in that 309 million figure. Take the number for what it’s represented to be – the best information I could find. Births, deaths and border crossings change that figure every single day. Trying to say one number is better than another is a little like trying to pin jello to the wall.
Those 309 million people (more or less…your experience may vary) reportedly produce a gross domestic product (the total amount of goods and services produced by the US economy) of about $14.6 trillion of which the Federal Government takes in about $2.75 trillion in taxes (according to the IRS website’s 2008 figures which were the most recent available) before refunds.
The national debt is somewhere around $13.79 trillion dollars the last time I checked and is growing at a steady rate. To give you an idea of the rate, total US government spending for 2010 is budgeted to be around $3.72 trillion not including off budget spending (like the war in Afghanistan, etc). That makes for a budget deficit of at least $1.0 trillion; however, the government accounting office says it’s more like $1.56 trillion. Is it any wonder that President Obama’s hand selected debt commission warns of a “fiscal cancer”?
That’s not even the really scary part to me.
Now consider for the moment that the Federal Government directly employs approximately 2 million civilians and another 1.4 to 2.4 million military personnel. By the definition I gave above, these people should be considered unproductive as they derive their income to a greater or lesser extent from the taxes paid by the income of others derived from private sources. Yes, they are “employed and pay income taxes”; however, think for a moment about the true impact of the income taxes they pay. When a Federal employee gets a paycheck, he or she is being paid from the taxes paid by income derived from private sources since the government does not, for the most part, produce goods and services on a “for profit” basis. As a result, any “income tax” paid by a Federal employee is a de facto income adjustment since those “taxes” do not add anything new back into the pot.
So, how much does the Federal payroll account for in the budget? I was unable to find any meaningful number to answer that question. So, let’s make an assumption and go from there. Assume for the moment that the average Federal employee earns a salary of $75,000.00 per year not including benefits. Further, let’s use the low end figure of 3.4 million Federal employees. That nets you $255 billion in Federal payroll every year not including benefits. If we add in another $15,000.00 per employee for the alleged average of medical and dental benefits, you need to add another $42.5 billion to the payroll expense.
3.4 million Federal employees may not seem like much compared to the population. That’s a little over 1% of the population. $300 billion doesn’t seem like much when compared to the total budget. That is about 8%.
But what about all those people on Social Security or welfare?
As of 2007, there were about 49.9 million people receiving Social Security. Technically, these people are all on the Federal payroll, too; and, as baby boomers retire, that number is going to climb dramatically. Suddenly, instead of 1% of the population on the Federal payroll, it’s more like 17%. What does that do to payroll’s percentage against revenue?
I’ll let the co-chairman of President Obama’s own debt panel tell you:
The commission leaders said that, at present, federal revenue is fully consumed by three programs: Social Security, Medicare and Medicaid. "The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans -- the whole rest of the discretionary budget is being financed by China and other countries," [former Republican Senator from Wyoming Alan] Simpson said.
If I’m reading that right, about 17% of the population takes up 100% of Federal revenues. That’s before we get into unemployment benefits or other welfare programs. That’s before we consider the impact of progressive tax policy which allows a significant percentage of the population pay no Federal income tax (some figures say as much as 45%).
None of the above takes into consideration state, county or city employees as it would be too time consuming to research. For instance, the state of Texas employed a little over 300,000 full time employees in 2009. There are 49 other states of varying size to research as well as territories like Puerto Rico and Guam which ding the Federal Budget to some extent. Another facet of the population not addressed here are children. Assume for the moment that half the population is under the minimum employable age. That gets us a total employable workforce of about 154 million. Take out the 53 or so million on the government payroll (including retirees) and that leaves about 100 million of us capable of footing the bill.
How long will it be before China says no more? I’m guessing sooner rather than later.
How long will it be before those people in the economy producing an income from private sources decide they don’t want to play anymore and stop producing? I know I’m sick of it already. God help us all if more than 50% of the population feels the same way.
If the top marginal tax rate is 39%, what is 39% of $0? That would be zero.
I hope I’m wrong, but I don’t think I am. If I am missing something, please let me know.