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Government Support Increasingly Boosts Incomes

ByEd Yardeni
Published 09/25/2013, 12:13 AM
Updated 07/09/2023, 06:31 AM

FIG 1

The National Income and Products Accounts (NIPA) show that the pre-tax compensation of workers dropped to 61.0% of national income during Q2. That’s the lowest since Q2-1955, and below the 65% average from the 1970s to the 1990s. Wages and salaries have been just below 50% of national income for most of the past 12 quarters; this is the first time that they’ve been that low on record, starting in 1948. They peaked at a record 59.0% during Q1-1970, and it has been all downhill since then. However, that’s partly because “supplements in compensation” (including health care) have increased from 6% of national income in the early 1960s to around 12% since the early 1990s.

The NIPA income shares analysis is pre-tax and before the government gets involved in redistributing income using tax revenues and borrowings. This explains why disposable income--which includes earned income (compensation), unearned income, and entitlements--remains around 85% of national income, as it has since the late 1940s.

The big story here is that entitlements (“government social benefits to persons”) has soared from less than 5% of national income in the early 1950s to recent record highs around 17%. The federal and state governments are currently redistributing income at an annualized rate of almost $2.4 trillion, which slightly exceeds the sum of federal income and payroll taxes. In effect, every tax dollar collected from workers by the federal government is redistributed.

FIG 2

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