Tuesday, May 25, 2010

Will Government Pac Man Consume the Economy?

USA Today has a chart and article about the rising share of personal income passed on to people as government benefits, and the correspondingly shrinking share of personal income from private sector output. Unfortunately, the chart doesn’t add in government wages, an additional 9.8% of personal income, meaning government benefits plus wages now total 27.7% of personal income. The private sector’s only 14% ahead!

Can government just keep growing its share of personal income, perhaps until government pays half of us? No, according to University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all. "This is really important," Grimes says. No kidding.

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