Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.
At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.
Those records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. The result is a major shift in the source of personal income from private wages to government programs.
The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. "This is really important," Grimes says.
The recession has erased 8 million private jobs. Even before the downturn, private wages were eroding because of the substitution of health and pension benefits for taxable salaries.
The Bureau of Economic Analysis reports that individuals received income from all sources — wages, investments, food stamps, etc. — at a $12.2 trillion annual rate in the first quarter.
This is a worrisome trend that I don't see curtailing anytime soon with the wretched policies coming out of Washington.