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Safety-net programs soften blow from stagnant economy

Per capita income drop would be more than twice as bad but for New Deal programs under attack by conservatives

October 31, 2014 2:00AM ET

Americans made significantly less money in 2012 than in 2000. That decline, as disconcerting as it is, would have been more than twice as bad if it weren’t for three New Deal era safety net programs that largely offset falling wages and vanishing interest income.

Income per American, measured in 2012 dollars, fell more than $1,000 from 2000 to 2012. That decline would have been close to $2,200 per person but for increased payouts from Social Security, unemployment insurance and traditional pensions, my latest analysis of the official data shows.

Those increased benefit payments saved Americans from much more human suffering and stopped the worst recession in eight decades from descending into a vicious cycle of falling incomes that reduced sales of goods and services, which in turn would have savaged corporate profits, forcing even more layoffs and ultimately threatening social stability.

But the virtues of these three remaining sections of our badly frayed safety net come at a cost. Instead of working, millions of people were forced to take their Social Security and pension benefits early, which meant they get paid at reduced rates. Even at full payments, Social Security and pensions provide less income than work.

Millions more people, unable to find work, had to get by on meager jobless benefits, which they paid for with money deducted from paychecks past. About half of those still jobless have since exhausted these benefits.

America without safety net

As badly off as so many Americans are, imagine an America without Social Security, pensions and jobless benefits. Imagine an America where income per capita reported on tax returns is not the $30,003 of 2000 or the $28,989 of 2012 but only about $27,800.

Businesses large and small, facing a severe shortage of customers with money in their pockets, would be forced to cut both wages and workers. The stock market, now at record levels, would be near the lows of six years ago. Instead of showing record corporate profits, income statements would be awash in red ink. And instead of seeing rising revenues and falling deficits because of the modest economic recovery and tight reins on spending under President Barack Obama, the federal government would be starved of tax revenues and running larger deficits.

When you cast our ballot Tuesday, think about the economy we would have if it weren’t for the safety net of Social Security, unemployment insurance and pensions.

The share of people receiving benefits from the Supplemental Nutrition Assistance Program (what used to be called food stamps) rose from 6 percent of Americans in 2000 to 15 percent in 2012. Without income from safety-net programs, the share would probably be at 25 percent or so.

Social Security and unemployment benefits were enacted during the 1930s. A 1938 law, strengthened in 1974, protected pension funds from being drained by corporations. All three policies reflected the belief that a post-agrarian, industrial America would prosper more by insuring people against economic downturns and the risk of poverty in old age.

Voter confusion

My latest analysis of the official data comes as voters are being asked to decide Tuesday between politicians who insist we must cut or get rid of what remains of our badly frayed social and economic safety net and those politicians who want to maintain or expand these programs.

American voters appear confused on this issue. Numerous polls show that the vast majority of Americans, including nearly three-fourths of Republicans, favor expanding Social Security. Yet polls also suggest that voters will elect many politicians who promise to cut Social Security, pensions and jobless benefits.

The disconnect between what people tell pollsters about repairing and strengthening the safety net and who they say they plan to vote for illustrates in part the failure of major news organizations to report on the economy in ways that make sense to most people or to explain the positions of many politicians.

Here’s some breaking news that may help people understand the damage done by our economic and tax policies in this century, especially tax cuts and reducing investments in the future, notably through basic research, education and infrastructure:

  • Wages per capita in 2012 were down by $930, or 4.4 percent, from 2000.
  • Interest from bonds and savings accounts fell $583 per capita from 2000 to 2012 , down a whopping 62.1 percent. While the U.S. population grew more than 11 percent in that time, the number of people earning any interest fell almost 30 percent.

These figures come from the Internal Revenue Service’s annual Table 1.4 reports. Zhibo Zhang, one of my research assistants, adjusted the hundreds of detailed data points for inflation and consolidated the data, which I then analyzed.

Offsetting these losses were boosts in income from safety-net programs. Social Security payments shot up $508 per person, to $1,677. Pension payments, both corporate and government, increased by $505 per person, to $3,107. Unemployment benefits nearly tripled, from $80 per person in 2000 to $227 in 2012.

Payouts from taxable individual retirement accounts also rose, partly because of an aging population but also because many people without work had to tap their retirement savings plans. Payouts in 2012 came to $735 per American, an increase of $269, or 57.6 percent, over 2000.

When you cast your ballot Tuesday, think about the economy we would have if it weren’t for the safety net of Social Security, unemployment insurance and pensions.

David Cay Johnston, an investigative reporter who won a Pulitzer Prize while at The New York Times, teaches business, tax and property law of the ancient world at the Syracuse University College of Law. He is the best-selling author of “Perfectly Legal,” “Free Lunch” and “The Fine Print” and the editor of the new anthology “Divided: The Perils of Our Growing Inequality.”

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera America's editorial policy.

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