Are transfer payments good or bad for the US economy?
Transfer payments are payments made by the government with no goods or services being produced in return. They are generally used to help people who cannot sufficiently earn money themselves. Examples of such payments include welfare, financial aid, food stamps, social security etc. Economic programs which include the issuing of transfer payments, in my opinion, are incredibly crucial to our economy and help stimulate it by providing a safety net for vulnerable populations. There is an argument that it provides a negative impact on the US economy by transferring money without creating any outcomes that are advantageous for the economy. However, transfer payments have been proven to be stimulating for the economy, even when ignoring simple moral obligations towards the vulnerable people in America.
There are arguments that transfer payment budgets should be lowered and certain programs should be weakened or removed, but this would only make America’s society more top-heavy- a system that ignores the impoverished people. Transfer payments have proven to be a critical factor in cushioning households during recessions. For example, in the 2001 recession, real GDP fell 1.6 percent from its peak to its trough, while real disposable personal income fell by 0.9 percent. (Lumen) This shows that the households of America didn’t have to take on the complete burden felt by the US economy. If they did, it would have dire consequences on the lives and futures of the American people and their work. Therefore, when looking at transfer payments as a “crisis protection cushion” of sorts, it is difficult to create an efficient alternative. The people of America should still be able to afford their basic necessities during economic recessions, and this idea should be supported by the government.
When analyzing the effects of transfer payments from a standpoint outside of crisis protection, statistics still support the idea that they are beneficial in many ways. Poverty and racial disparity issues have gone hand in hand for much of America’s history, and transfer payments have been proven to be effective at lowering both of these. “In 1970, families’ government benefits and the taxes they paid lowered the white poverty rate by 3 percentage points and the Black poverty rate by 2 percentage points and left the Latino poverty rate unchanged. In contrast, in 2017, accounting for government benefits and taxes lowered the white poverty rate by 12 percentage points, Black poverty by 16 percentage points, and Latino poverty by 12 percentage points” (Trisi 2021). The overall poverty rates of each of the mentioned groups were different, of course, so the transfer payments actually made the poverty rates more balanced. This data can be found in a report by the CBPP. According to the CBPP again, a plan proposed by the Biden administration as of 2021 could cut child poverty in half and cut black and Latino poverty in a third. Of course, this claim’s legitimacy can be questioned, but similar plans have worked in the past. Percentage rates of Black people and Latino people in poverty are higher than the percentage of white people, and transfer payments are contributing to the narrowing of these disparities.
Bibliography
Danilo Trisi and Matt Saenz, et al. “Economic Security Programs Reduce Overall Poverty, Racial and Ethnic Inequities.” Center on Budget and Policy Priorities,
https://www.cbpp.org/research/poverty-and-inequality/economic-security-programs-reduce-overall-poverty-racial-and-ethnic.
