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US welfare nation: Government handouts make up One Third of salaries

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Economic hole: President Barack Obama is struggling to find common ground with Republicans over how to bring the economy back on track.

Government handouts now make up a record-breaking one third of the total amount of wages and salaries in the U.S., according to a bombshell new study.

The payouts – including Social Security, Medicare and unemployment insurance – are placing an increasing burden on the state at a time it is trying to dig itself out from a mountain of debt.

And economists fear the toll on taxpayers will only increase further if quick action isn’t taken before the majority of baby boomers reach retirement age.

Social benefits make up 35 per cent of wages and salaries this year, up from 21 per cent in 2000 and 10 per cent in 1960, according to TrimTabs Investment Research, based on data from the Bureau of Economic Analysis.

‘The U.S. economy has become alarmingly dependent on government stimulus,’ said Madeline Schnapp, director of Macroeconomic Research at TrimTabs, in a note to clients, according to CNBC.

‘Consumption supported by wages and salaries is a much stronger foundation for economic growth than consumption based on social welfare benefits,’ she added.

She claimed that to get welfare back to its pre-recession rate of 26 per cent of pay, ‘either wages and salaries would have to increase $2.3 trillion, or 35 per cent, to $8.8 trillion, or social welfare benefits would have to decline $500 billion, or 23 per cent, to $1.7 trillion.’

The Obama administration and lawmakers face a dilemma as they try to agree on ways of cutting the budget to help combat the ballooning deficit.

Republicans are demanding that the White House must make more drastic cuts to try and balance the books as both sides seek agreement before the March 18 budget deadline.

But a Wall Street Journal/NBC News poll released last week showed that less than a quarter of Americans supported making cuts to Social Security or Medicare to help reign in spending.

Joe Terranova, chief market strategist for Virtus Investment Partners, told CNBC that some sort of opt out for Social Security or even raising the retirement age could help correct the imbalance.

The ageing baby boomer generation means that welfare benefits have increased by $514 billion over the past two years, according to the TrimTabs study.

The recession also takes some of the blame for the change because governments traditionally spend more during financial crisis to help prop up the rest of the economy.

But economists can take heart from the fact that the welfare levels in other countries are even higher. In the UK, social welfare benefits make up 44 per cent of wages and salaries.

‘No matter how bad the situation is in the U.S., we stand far better on these issues (debt, demographics, entrepreneurship) than other countries,’ Steve Cortes of Veracruz Research told CNBC.

‘On a relative basis, America remains the world leader and, as such, will also remain the world’s reserve currency.’


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