While the trend has been up over the last year (after cratering in May, 2009 at 69.06 percent), the current level is still well below the pre-Great Recession level of 74.48 percent in June 2007. With the aging of the baby boomers and Obamacare looming, it’s doubtbul that we will ever get back to pre-recession levels.
While the trend has been up for the last few months (after cratering in May, 2009 at 69.06 percent), the current level is still well below the pre-Great Recession level of 74.48 percent in June 2007. With the aging of the baby boomers and Obamacare looming, it’s doubtbul that we will ever get back to pre-recession levels.
In yesterday’s post on Federal Aid to the States, I asked if anyone knew why states such as New Hampshire and Texas received so much less federal aid, on a per capita basis, than their surrounding neighbors. Table 1 below reveals the answer.
To hunt down the culprit I decided to turn to my favorite two-state comparison–New Hampshire and Maine. One reason why I like to compare the two states, besides the fact they are economically and politically opposites, is that they have nearly identical populations right now. As such, I can show the dollar amounts without having to adjust them into per capita terms since the relative difference won’t change.
So let’s dive into the data. First, notice just how long the list is of federal agencies that dole out aid to the states. If you are into pork, there is a federal agency out there for you. The obvious question from this list is . . . are there no limits to what the federal government can do?
Despite having identical populations, Maine receives $1.4 billion more from Uncle Sam than New Hampshire–$3.4 billion versus $2 billion, respectively. Where does this “Maine subsidy” come from? The vast majority of the difference is under the Department of Health and Human Services: Centers for Medicare and Medicaid Services to a tune of $1.1 billion.
So Medicaid is the single largest driver of the difference in Federal aid to the states accounting for $256 billion of the total $552 billion doled out. It dishes more aid than the Department of Agriculture ($31 billion), Department of Education ($45 billion), Department of Housing and Urban Development ($47 billion), Department of Labor ($10 billion) and Department of Transportation ($57 billion) COMBINED!
The chart below shows the private sector share of personal income from January 1959 to June 2011. Post-revisions, the drop-off in the private sector was greater than before although the bounce-back is now greater–but it looks like the private sector still ends up in the same place. So, for June, the private sector share of personal income was 70.49 percent. This is well below the pre-Great Recession level of 74.48 percent in June 2007.
And since we have revised data, I have also updated this chart (see below) which shows, on a monthly basis, the contributions paid into Social Security and Medicare (red line) via the payroll tax versus the benefits paid-out by Social Security and Medicare (green line). Prior to the “Great Recession,” contributions paid-in almost always exceeded the benefits being paid-out.
However, beginning around 2007 and the Great Recession, contributions began to level off. The decline in contributions was exacerbated by the recent extension of the Bush tax cuts which included a one-year reduction of 2 percentage points in the payroll tax. So as of June 2011, the gap between benefits paid and contributions is $348 billion.
On the other hand, benefit payments have the looks of becoming an exponential function. I’ll have to do some more digging around, but I’m guessing a lot of the new growth was due to the Medicare Part D expansion which went into effect in 2006 which coincides with a large lurch upwards in benefit payments.
Note: “Supplements to Wages and Salaries” (benefits) in the BEA data are not broken down into “private” sector” versus “government” components. I used the ratio of private wages and salaries to total wages and salaries in order to disaggregate supplements.
Today the U.S. Department of Commerce’s Bureau of Economic Analysis released new personal income data for the first quarter of 2011 by state (pdf) and revisions for the past couple of years. As shown in Chart 1, The U.S. private sector share of personal income for the first quarter of 2011 was at 69.3 percent. While this is the highest point since the second quarter of 2009, the private sector has essentially been moving sideways. With the economic signs of a double-dip recession growing by the day, even this slight uptick in the private sector may be short-lived.
Chart 2 shows the major culprit behind this crowding-out of the private sector since the beginning of the “Great Recession”–the Orwellian American Recovery and Reinvestment Act (ARRA). In the first quarter of 2011, the ARRA pumped $45.5 billion into the U.S. economy via personal current transfer receipts (pdf). This is down from the peak spending ($103.1 billion) under ARRA in the first quarter of 2010. As ARRA spending continues to wind-down, this will help the U.S. private sector rebound from its all-time lows though it puts a drag on overall personal income growth.