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Transfer Payments Rise 34 % Under Obama, Taxpayers Lose Out Big Time

August 29, 2012

Fortune senior editor-at-large Shawn Tully recently took a look at just what goods and services taxpayers have reaped from the 17.8% rise in spending---almost one trillion dollars---since President Obama took office in the last quarter of 2008. Did the flurry of spending lead to increased services for taxpayers or investments in infrastructure to make the US economy stronger and more competitive?

It turns out, the majority of that nearly one trillion dollars didn’t purchase better roads or schools, or even pay the janitors, teachers, and law enforcement personnel whose salaries taxpayers foot the bill for in return for the services they provide:

From late 2008 until today, spending on government goods and services rose just .1% annually, adjusted for inflation. The real shocker is investment: It dropped 3.71% a year in real terms. So the almost 18% rise in spending failed to provide substantially more government services, and furnished a lot less money for the highly touted necessity of rebuilding America's infrastructure.

So where did all that money go, if it was not purchasing us better services or investing in our infrastructure? Unfortunately, the vast majority of that additional spending was funneled towards a ballooning new category of government spending called “transfer payments”:

Government transfer payments are defined as expenditures for which no good, service or upgrade in infrastructure is expected in return. The government collects the money in the form of taxes and new borrowing, then writes the checks to consumers and, to a lesser extent, companies in the form of subsidies.

In other words, the US, already up to the eyeballs in debt and borrowing nearly 40 cents of every dollar we spend, frittered away almost one trillion dollars over the past four years…to move money around from one group of individuals to another. The three largest transfer payment categories are Social Security, Medicare, and Medicaid, but fast on their heels are unemployment benefits, food stamps, and a myriad of subsidies for everything from solar panel manufacturers to ethanol producers.

Unfortunately for taxpayers and anyone concerned about the nation’s spending addiction, the trend for transfers is a definitively upward trajectory: transfer payments have increased by nearly $800 billion a year since 2008, a staggering 34% increase.

The lesson? Massive amounts of government spending do not automatically equate to more goods and services for taxpayers, or a stronger economy overall. If the US is going to set itself on a sustainable fiscal path, it will need to stop taking capitol from the private sector to pay for the inflated social welfare state, and return that capitol to the taxpayers and small business owners who are the real engines of America.


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