All Commentary
Monday, October 1, 1962

Now the Welfare Mess

When the Senate rejected Presi­dent Kennedy’s Medical Care for the Aged bill by the narrow vote of 52 to 48, he denounced the vote as “a most serious defeat for ev­ery American family… We have to decide,” he continued, “the United States, in 1962, in Novem­ber, in the Congressional elections, whether we want to stand still or whether we want to support this kind of legislation for the benefit of the people.”

Was the defeat of the medicare bill a defeat, or was it really a victory, for most American fam­ilies? May it not at least be better to “stand still” for a while than to keep going in the wrong direction—further and further away from individual initiative and self-help, and deeper and deeper into the pa­ternalistic welfare state?

How deep we have already got into the welfare state is docu­mented in the July monthly letter of the First National Bank of New York. In a tabular compari­son of public social welfare ex­penditures in the fiscal years 1950 and 1961, the bank’s letter shows that old-age, survivors, and dis­ability insurance payments rose from $784 million in 1950 to $12,­160 million in 1961, an increase of 1,451 per cent. Unemployment ben­efits rose to nearly $4 billion, an increase of 67 per cent. Old-age as­sistance payments rose to nearly $2 billion, an increase of 33 per cent. Aid to dependent children in­creased 115 per cent, hospital and medical care costs 106 per cent, government spending on medical research 827 per cent, veterans compensation and pensions (at nearly $4 billion) 34 per cent. Al­together, total public welfare ex­penditures grew from $13.8 billion in 1950 to $37.3 billion in 1961, an increase of 170 per cent.

Limit to Taxes

This tremendous total does not include such welfare-related activ­ities as farm price supports, ur­ban renewal, aid to depressed areas, and so forth.

The money to pay these gigantic welfare benefits did not come out of some magical fourth dimension. It came out of taxes—nearly half out of a flat tax on payrolls. If the employer’s contribution is consid­ered to be in lieu of higher pay for the worker (as in the long run it must be)the tax on the workers is now at 61/4 per cent. The com­bined tax is now scheduled to rise to 71/4 per cent next year, to 81/4 per cent in 1966, and to 91/4 per cent in 1968. The President’s medicare program, if enacted, would add another 1/2 of 1 per cent. Yet even Secretary Ribicoff declared last February : “I think we have reached a stage of almost maximum taxation under social security. In my mind, I place that at 10 per cent of payroll.”

Mounting Abuses

Rates have to be raised to keep the program solvent. But it is a real question whether presently scheduled rates are high enough to do this. No serious thought is giv­en to the enormous “unfunded li­abilities” already assumed by the social security program. Official actuaries have placed these at $350 billion. One former actuary places them at $650 billion.

Yet hardly a week goes by in which a further piling up of liabil­ities is not recommended. Several Administration proposals would “liberalize” unemployment insur­ance further.

In the last year or so, reports of abuses and scandals in the welfare programs have been mounting. The bank letter cites a few. From Hollywood, it was reported that a child actor, who turned down a job paying up to $28 a day because he was accustomed to $100-$150 a day, was awarded unemployment benefits. In New York, a ring of six persons was uncovered which allegedly had bilked the public of $41,900 in unemployment compen­sation by faking unemployment records. A committee of the New Jersey legislature discovered a family with 23 children that was receiving $969 a month in welfare payments (including social secur­ity).

It is obvious that handing out generous welfare benefits to idle people while imposing heavy tax burdens on those who work and produce can only discourage am­bition and responsibility, work, production, and economic growth. The President’s medicare program would give heavy (unearned) ben­efits to the present aged and load the cost onto the present young.

The whole social security sys­tem is in urgent need of re-exam­ination.

Reprinted by permission from Newsweek, August 6, 1962

  • Henry Hazlitt (1894-1993) was the great economic journalist of the 20th century. He is the author of Economics in One Lesson among 20 other books. See his complete bibliography. He was chief editorial writer for the New York Times, and wrote weekly for Newsweek. He served in an editorial capacity at The Freeman and was a board member of the Foundation for Economic Education.