Four Horsemen

zerohedge.com
by Tyler Durden
Wed, 10/24/2018 – 15:50

Authored by Ryan McMaken via The Mises Institute,

According to a report released this year by the Congressional Budget Office, only the top two income quintiles in the United States pay more in taxes than they receive in government transfers.

Not surprisingly, the lowest income quintiles receive far more in transfers than they pay in taxes:

In the lowest quintile, households pay only $400 in taxes (as of 2014, the most recent data available) while receiving more than $16,000 in various types of tax-funded transfer payments.

The end result is households in the bottom three quintiles have higher incomes after taxes and transfers than they do before taxes and transfers:

The second-to-top quintile is slightly worse off after taxes and transfers, and the highest quintile is sizably worse off. In other words, the top two income quintiles are subsidizing the bottom three, and the advantage, proportionally speaking, gets larger as income goes down.
The Politics of a Majority on the Dole

The political implications of this are considerable. As Ludwig von Mises once noted, once we get to the point that a majority of the voting population receives more in benefits than it pays in taxes, then voters will demand more and more wealth be transferred to them through government programs. It will then become politically necessary to extract larger and larger amounts of wealth from a minority in order to subsidize the majority.

Market economics will become less and less popular because the voters will have realized they can — in the words of James Bovard — “vote for a living” instead of work for a living.

These findings don’t always apply at the level of the individual household, of course. In the middle quintile, especially, we’ll find some households that are indeed worse off after taxes and transfers than before. This will especially be the case for households that do not yet receive old-age benefits such as Medicare and Social Security. Those households are currently being taxed to pay for current recipients of SS and Medicare. Later, however, those households will begin to receive those benefits. And, over a lifetime, they’re likely to receive more in benefits than what they “paid in.” This notion of “paying in,” however, is pure fiction, and there is no “trust fund” for old-age benefits, and all benefits received at any given time are funded via taxation of current wage earners.

As far as politics goes, this latter fact is very important because voters receiving old-age benefits know that any significant cut in government spending and government taxation is likely to necessitate a decline in paid benefits. This is why neither major party ever seriously talks about cutting Medicare or Social Security, and why Donald Trump has even recently declared his own love for Medicare. It’s simply a redistribution of income and wealth from current wage earners to current recipients, and for most elected officials, attempting to cut these benefits would be political suicide.

At the low end, benefits more frequently take the form of “means-tested” benefits such as Medicaid and food stamps. And since these benefits are geared toward low-income earners, we naturally see more benefits going toward the lowest earners. Indeed, in the lowest quintile, market income is less than half of income after taxes and transfers.

But for many voters, the reality is this: any significant cuts in federal spending will mean less government benefits, either now or later.

(And don’t forget that the data here doesn’t even account for government employees whose “market” income is also government funded. In the case of those workers, cuts in government spending will reduce both their market income and their transfer income.)

Since many households at both the lowest end and near the middle receive more in benefits than they pay in taxes, we end up with a situation in which the voters think tax cuts don’t benefit them much — but spending cuts definitely do hurt them.

Thus, the political outcome is one in which there is plenty of political pressure to maintain spending levels — or increase them — while tax cuts aren’t as popular.
Transfer Income Is Growing as a Portion of Market Incomes

Looking at transfer incomes as a percentage of market incomes, by quintile, we find significant growth since the dot-com bust of 2001:

With the lowest quintile, transfer payments declined during the 1990’s economic expansion, and in the wake of the 1996 welfare reform. But government transfer payments grew again following the 2001-2002 recession. Transfers dipped again as the US approached the 2008 bust, and have grown sizably ever since.

Indeed, as of 2014, transfers by this measure were at an all-time high for the second-to-lowest quintile, and were near an all-time hight for the lowest quintile.

But in all quintiles, transfers have increased proportional to market income, whether due to stagnating market income or growing transfer payments. an increasing role for transfer payments can also give a false impression of overall income growth since official income numbers, as provided by federal agencies such as the Census Bureau, usually include transfer payments and other taxpayer-funded sources of income in the income data. Basically, transfer payments are padding the income data — paid for by the top income quintiles.
Perceptions Matter

Like all statistics of this sort, though, we can’t get a complete picture from this alone. This data only tells us about transfer payments — which are easy to track — and doesn’t tell us much about the many other ways that governments transfer wealth and income. For instance, we must also consider how regulations negatively impact the incomes of employees and business owners at all levels. And we must not ignore how money-supply inflation tends to hurt the poor the most, while tending to favor higher-income groups. And then there are government contracts — such as high-tech weapons contracts that tend to benefit higher income groups as well.

Ultimately, though, perceptions often matter more than the details behind the numbers. The CBO report reminds us that a great many voters receive government welfare checks of various types, and the perception is that any true cuts in spending will bring a high cost to those who have become accustomed to their taxpayer funded benefits. Ultimately, the effects on voting patters and public policy will be very real.

STAR WARS! US warship shoots down missile in space with ballistic ‘kill vehicle’

mirror.co.uk

The intercept weapon was launched by warship USS John Finn (Image: Missile Defence Agency)

Click Here For Video.

The video, released by the US Navy, shows the USS John Finn attempting to hit a medium-range ballistic missile.

A similar experiment earlier in the year failed but this time it manages to successfully hit the missile in space.

The SM-3 Block, dubbed ‘Kill Vehicle,’ reportedly uses brute force as opposed to an explosive warhead to eliminate its target, with the firm who make the missile claiming it hits its target with the power of a ‘ten-tonne truck’ travelling at ‘600mph’.

The technique has been likened to hitting a bullet with another bullet, which is why this test was dubbed a “superb accomplishment” by a US Navy official.

The target was a test missile launched from Pacific Missile Range Facility at Kauai, Hawaii.

(Image: Missile Defence Agency)

Defense Agency (MDA) said: “Sailors aboard USS John Finn successfully conducted an intercept of a medium-range ballistic missile target with a Standard Missile-3 (SM-3) Block IIA missile during a flight test off the west coast of Hawaii.”

The ‘Kill Vehicle’ is being “developed cooperatively by the US and Japan” and will form part of America’s coastline defence.

“This was a superb accomplishment and key milestone for the SM-3 Block IIA return to flight,” said Lt. General Sam Greaves.

“My congratulations to the entire team, including our sailors, industry partners, and allies who helped achieve this milestone.”

This is the second time the weapon has been been successfully tested, following two consecutive failures.

“Based on observations and initial data review, the test met its objectives, according to the Agency. Program officials will continue to evaluate the system’s performance,” the MDA’s statement said.

The first successful test of this particular SM-3 Block happened in February 2017 but the two after that failed, with the latest coming in January this year.

The weapon can be launched from land or sea and, according to the Missile Defense Agency, will form a key part of the AEGIS Ballistic Missile Defense system.

The successful test of the ‘Kill Vehicle’ is likely to send a warning to both North Korea and Russia.