Sven Larson on America at a Threshold

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Continued from “2011 Federal Aid Set to Overwhelm State General Funds.”

Sven: The reason why I define a critical breaking point at or just beyond where America is today has to do with the combination of three factors:

1. The amount of people who depend on government and for what reason. Under Obama income dependency – including things like Earned Income Tax Credit – have expanded almost to the point where a minority are net contributors to government. I do not highlight this a great deal in the book because there are other things to emphasize, but the FIRST Act would tip us way over the line in this respect.

2. The burden of taxes on the private sector. Evidence from Sweden primarily, but also from other European welfare states, indicates that once government passes 40 percent of GDP the productive sector can no longer keep up with the tax obligations that government puts on it. That is not to say they are not affected prior to that point, but evidence indicates that to maintain the 40 percent level government needs to intrude on so many sectors of the economy that you get a negative synergy effect. Tax base shrinkage, if you will.

3. Once government has grown to this point there are enough politicians who have vested so much political capital in the welfare state that it will be politically almost impossible to shrink government from hereon. It takes a long time to grow government to the size where it consumes close to half the economy; during that time two generations or more of politicians make careers based on defending and expanding the welfare state. Rethinking the entire welfare-state structure becomes as alien to the political main stream as unicorns.

Sven Larson is a research fellow with the Wyoming Liberty Group and author of Remaking America: Welcome to the Dark Side of the Wefare State. His website is