Should The Government Achieve A Welfare States?
Introduction
“Using government to achieve a welfare state involves using other people's money, taken by force — and that is a fatal flaw that leads to fiscal catastrophe."1 Ultimately, welfare states do more bad than good for a country and its people. They create temporary solutions for problems that require many resources and time. Even with the problems welfare states correct, they still create more problems that they fix. These glitches can be seen through the United Kingdom. The tax structure and welfare benefits seen in the United Kingdom highlight the problems of a welfare state. People are taxed at high rates to provide funding for those are unemployed or cannot work. Without strict unemployment benefits, some people choose not to …show more content…
work and live off the government. This system of disincentivized work encourages economic inactivity, punishes success, scares away business and immigration, and causes social fractures. Welfare states are not a solution to unemployment and class problems, they only create more problems for a country and make them vulnerable to poor economic and social conditions.
Creating Economic Inactivity
The welfare state creates a system where citizens are supported from cradle to grave by the government.2 When the government supports people it disincentivizes personal responsibility to participate in a country’s economy.
When a person is living comfortably while receiving free support from the government then they have no reason to work. So why work? The government’s support makes finding a job the less appealing option. There is no need to work if you live, eat, and have spending money provided by the government. This lack of working effort creates a stagnant unattractive economy.
One example of economic inactivity is shown in a BBC news story. One family receives €30,284 a year to live. The father has been out of work since 2001 because “The market for (his) skills dried up 10 years ago.”3 Instead of receiving training in a new field the father decided to stay on unemployment. There is no reason for him to find a job when he is being paid to sit home by the UK government. The U.K.’s unemployment benefits cover housing, cable TV, a bar allowance, and a cell phone contract. With more than the necessities covered by the government there is no need for someone to go and get a low paying run of the mill job. This creates a stagnant economy with no wealth creation. Individuals that are paid for doing nothing they do not contribute to a country’s social and economic …show more content…
needs. The economic inactivity created through this welfare system in the UK can be seen in the graph below4. The U.K.’s GDP has fallen below the Eurozone average for the past 2 years due to economic inactivity. To help the UK become one of the economic powers in Europe again they must reform their welfare system to generate wealth creation incentives and personal responsibility in the country.
The welfare state also destroys social mobility.
When the government incentivizes unemployment it serves to sustain or increase unemployment. If the penalty for not working is roughly €30,000 in UK then it is not much of a penalty at all. There is comfort offered by not contributing to a country’s economy. Many people choose to not work and therefore do not have any social mobility. According to recent data by the deputy Prime Minister Nick Clegg, “Social mobility hasn't changed since the 1970s - and in some ways has got worse.”5 This data does not bode well for the U.K. unless something is done the country will remain stagnant both socially and economically for the foreseeable
future.
Punishing Success As shown in the chart below, in the United Kingdom individuals making over €34,371 are taxed 40% on their income. Individuals making over €150,000are taxed at a rate of 45%. These tax rates are punishment for individuals who are working and becoming successful. The rates are so high because of the high demand of welfare in the UK. Taxing individuals that are becoming successful through hard work make success seem like a burden. These individuals are working hard to make their money only for a big chunk to be taken out by the government and given to those who are not working hard. The taxes and redistribution of wealth is creating an anti-success mentality in the U.K.
Income Tax rates and taxable bands6
Rate
2011-12
2012-13
2013-14
Starting rate for savings: 10%*
£0 - £2,560
£0-£2,710
£0- £2,790
Basic rate: 20%
£0 - £35,000
£0-£34,370
£0-£32,010
Higher rate: 40%
£35,001 - £150,000
£34,371-£150,000
£32,011- £150,000
Additional rate: 50%
Over £150,000
Over £150,000
N/A
45% from 6 April 2013
N/A
N/A
Over £150,000
This taxation policy also creates tension and resentment of individuals on government welfare payroll. Those who work for their money are becoming more frustrated with the individuals that are living off the government. The working individuals have good reason to be aggravated with the high tax levels for their hard earned money. Many families are taxed so much that they are barely living better off than those on welfare. For example, those earning €70,000 a year have only €42,000 after taxes which is only €12,000 more than some families are getting with welfare benefits provided by the government. In some cases a family may be better of living off government welfare than working all year long. In Milton Friedman’s talk on redistribution on wealth, he shoots down the notion that the best way to create wealth is to forcefully redistribute the wealth as in welfare states. Friedman says, “…the only way you can redistribute the wealth effectively is to destroy the incentive to have wealth.” This can be seen in the UK welfare system. Individuals are choosing not to seek wealth because it is given by the government. The individuals who are making their own wealth are having their wealth and their drive to create wealth stripped away by the government to be redistributed to those not creating their own wealth. The wealth redistribution also leaves those individuals with enough money to create wealth for the country with less capital to do so. Individuals making €1,000,000 or more are typically those who own business. When €450,000 of their money is taken they are left with less capital to expand their business and create jobs. If the government did not tax these people at such a high percent ,the jobs would create themselves through capital investments by wealthy individuals to businesses. Individuals with the capital to invest create more jobs and wealth than the government could on their own.
Causing Social Fractures The welfare state creates class biases in the country. When citizens are forced to support one another with no return there becomes tension between the supporters and those being supported. Social fractures create tension throughout the country that cannot be easily solved, especially after generations of frustration. Those who are being supported are seen as “freeloaders”. Resentment towards groups of people has been seen frequently throughout history. The divide in a country’s people can be hard to overcome and has been seen in the black civil rights movement in the United States and the holocaust in Europe. Though these are extreme cases of social fractures, the biases can still cause a lot of harm to a country and group of people. The break in social classes can lead to extremist parties such as the BNP (British National Party) in the United Kingdom. The BNP blames the country’s immigration for the large amount of people on welfare.7 The people supporting the individuals on welfare are finding a scapegoat in immigrants to channel their anger at. This type of social fracture can cause large amounts tension in a country and can have some serious consequences. The frustration of the BNP can be read about on their party website where they state” Britain has become a land where foreigners come first and decent, hard-working Britons are exploited.”8 The anger towards immigrants can be felt in this statement alone. If something is not done and this party comes into power bad things can happen to immigrants and immigration policy in the UK all as a result of the welfare state. During the Germany’s economic woes in the 1930’s Hitler found a scapegoat in the Jewish people of Germany. 9This led to an anti-Semitic focus throughout the entire country. The BNP is doing a similar thing to the immigrants of the United Kingdom today. The welfare policy and economic conditions have brought some people of the UK to find a scapegoat in the immigrants. If the government is not careful there may be similar hatred of immigrants as there was of the Jews in Germany during the holocaust.
Scaring away Businesses and Immigrants The welfare state makes a country much less appealing to businesses and immigrants trying to create wealth for themselves. If a business has the option of a welfare state that will tax income heavily or a country that has lower tax rates they will almost never choose the welfare state. The personal incentive to start a business in a welfare state is gone once an individual learns that the government will take a large piece of their income. It would be best to start a business in another country where the government does not punish you for becoming successful. The detraction of business keeps the economy stagnant and makes the future of the country less appealing to potential investors. The tax regime in the U.K. has made 20 percent of big businesses consider leaving. In addition, 64 percent of big businesses felt that the tax burden has increased over the past 12 months. 10The taxation used to support the government has made the United Kingdoms competitiveness in the business world decrease. Without these businesses the U.K. may have an even bigger unemployment and welfare problem than they do now. The same idea can be applied to immigration. An individual seeking to make a new start will not choose a country where a large portion of their hard earned money will be taken by the government. Scaring off immigrants stops a country from growing economically. According to Diane Roth of Manhattan Institute, “immigrants make the economy more efficient and raise the wages of native-born citizens.”11 They do this by doing many of the non-skilled jobs that are needed to run a many businesses and to keep the country’s infrastructure sound. Welfare states scaring off these immigrants makes the future of their economy uncertain. The welfare state creates conditions that are not ideal for the type of wealth creation sought out by businesses and immigrants.
Conclusion
The means of Creating and maintaining a welfare state have poor social and economical consequences on a country that can be seen in the United Kingdom. Welfare states encourage economic inactivity, punish success, scare away business and immigration, and cause social fractures. The welfare state is not a solution for a country’s unemployment and poverty problems. It is only a temporary Band-Aid that will create even more headaches in the future. Losing the wealth creation incentive only creates more economic and social woes for a country. Governments must be careful with their welfare policies so that they do not harm the country’s free market and wealth creation.
“Using government to achieve a welfare state involves using other people's money, taken by force — and that is a fatal flaw that leads to fiscal catastrophe."1 Ultimately, welfare states do more bad than good for a country and its people. They create temporary solutions for problems that require many resources and time. Even with the problems welfare states correct, they still create more problems that they fix. These glitches can be seen through the United Kingdom. The tax structure and welfare benefits seen in the United Kingdom highlight the problems of a welfare state. People are taxed at high rates to provide funding for those are unemployed or cannot work. Without strict unemployment benefits, some people choose not to …show more content…
work and live off the government. This system of disincentivized work encourages economic inactivity, punishes success, scares away business and immigration, and causes social fractures. Welfare states are not a solution to unemployment and class problems, they only create more problems for a country and make them vulnerable to poor economic and social conditions.
Creating Economic Inactivity
The welfare state creates a system where citizens are supported from cradle to grave by the government.2 When the government supports people it disincentivizes personal responsibility to participate in a country’s economy.
When a person is living comfortably while receiving free support from the government then they have no reason to work. So why work? The government’s support makes finding a job the less appealing option. There is no need to work if you live, eat, and have spending money provided by the government. This lack of working effort creates a stagnant unattractive economy.
One example of economic inactivity is shown in a BBC news story. One family receives €30,284 a year to live. The father has been out of work since 2001 because “The market for (his) skills dried up 10 years ago.”3 Instead of receiving training in a new field the father decided to stay on unemployment. There is no reason for him to find a job when he is being paid to sit home by the UK government. The U.K.’s unemployment benefits cover housing, cable TV, a bar allowance, and a cell phone contract. With more than the necessities covered by the government there is no need for someone to go and get a low paying run of the mill job. This creates a stagnant economy with no wealth creation. Individuals that are paid for doing nothing they do not contribute to a country’s social and economic …show more content…
needs. The economic inactivity created through this welfare system in the UK can be seen in the graph below4. The U.K.’s GDP has fallen below the Eurozone average for the past 2 years due to economic inactivity. To help the UK become one of the economic powers in Europe again they must reform their welfare system to generate wealth creation incentives and personal responsibility in the country.
The welfare state also destroys social mobility.
When the government incentivizes unemployment it serves to sustain or increase unemployment. If the penalty for not working is roughly €30,000 in UK then it is not much of a penalty at all. There is comfort offered by not contributing to a country’s economy. Many people choose to not work and therefore do not have any social mobility. According to recent data by the deputy Prime Minister Nick Clegg, “Social mobility hasn't changed since the 1970s - and in some ways has got worse.”5 This data does not bode well for the U.K. unless something is done the country will remain stagnant both socially and economically for the foreseeable
future.
Punishing Success As shown in the chart below, in the United Kingdom individuals making over €34,371 are taxed 40% on their income. Individuals making over €150,000are taxed at a rate of 45%. These tax rates are punishment for individuals who are working and becoming successful. The rates are so high because of the high demand of welfare in the UK. Taxing individuals that are becoming successful through hard work make success seem like a burden. These individuals are working hard to make their money only for a big chunk to be taken out by the government and given to those who are not working hard. The taxes and redistribution of wealth is creating an anti-success mentality in the U.K.
Income Tax rates and taxable bands6
Rate
2011-12
2012-13
2013-14
Starting rate for savings: 10%*
£0 - £2,560
£0-£2,710
£0- £2,790
Basic rate: 20%
£0 - £35,000
£0-£34,370
£0-£32,010
Higher rate: 40%
£35,001 - £150,000
£34,371-£150,000
£32,011- £150,000
Additional rate: 50%
Over £150,000
Over £150,000
N/A
45% from 6 April 2013
N/A
N/A
Over £150,000
This taxation policy also creates tension and resentment of individuals on government welfare payroll. Those who work for their money are becoming more frustrated with the individuals that are living off the government. The working individuals have good reason to be aggravated with the high tax levels for their hard earned money. Many families are taxed so much that they are barely living better off than those on welfare. For example, those earning €70,000 a year have only €42,000 after taxes which is only €12,000 more than some families are getting with welfare benefits provided by the government. In some cases a family may be better of living off government welfare than working all year long. In Milton Friedman’s talk on redistribution on wealth, he shoots down the notion that the best way to create wealth is to forcefully redistribute the wealth as in welfare states. Friedman says, “…the only way you can redistribute the wealth effectively is to destroy the incentive to have wealth.” This can be seen in the UK welfare system. Individuals are choosing not to seek wealth because it is given by the government. The individuals who are making their own wealth are having their wealth and their drive to create wealth stripped away by the government to be redistributed to those not creating their own wealth. The wealth redistribution also leaves those individuals with enough money to create wealth for the country with less capital to do so. Individuals making €1,000,000 or more are typically those who own business. When €450,000 of their money is taken they are left with less capital to expand their business and create jobs. If the government did not tax these people at such a high percent ,the jobs would create themselves through capital investments by wealthy individuals to businesses. Individuals with the capital to invest create more jobs and wealth than the government could on their own.
Causing Social Fractures The welfare state creates class biases in the country. When citizens are forced to support one another with no return there becomes tension between the supporters and those being supported. Social fractures create tension throughout the country that cannot be easily solved, especially after generations of frustration. Those who are being supported are seen as “freeloaders”. Resentment towards groups of people has been seen frequently throughout history. The divide in a country’s people can be hard to overcome and has been seen in the black civil rights movement in the United States and the holocaust in Europe. Though these are extreme cases of social fractures, the biases can still cause a lot of harm to a country and group of people. The break in social classes can lead to extremist parties such as the BNP (British National Party) in the United Kingdom. The BNP blames the country’s immigration for the large amount of people on welfare.7 The people supporting the individuals on welfare are finding a scapegoat in immigrants to channel their anger at. This type of social fracture can cause large amounts tension in a country and can have some serious consequences. The frustration of the BNP can be read about on their party website where they state” Britain has become a land where foreigners come first and decent, hard-working Britons are exploited.”8 The anger towards immigrants can be felt in this statement alone. If something is not done and this party comes into power bad things can happen to immigrants and immigration policy in the UK all as a result of the welfare state. During the Germany’s economic woes in the 1930’s Hitler found a scapegoat in the Jewish people of Germany. 9This led to an anti-Semitic focus throughout the entire country. The BNP is doing a similar thing to the immigrants of the United Kingdom today. The welfare policy and economic conditions have brought some people of the UK to find a scapegoat in the immigrants. If the government is not careful there may be similar hatred of immigrants as there was of the Jews in Germany during the holocaust.
Scaring away Businesses and Immigrants The welfare state makes a country much less appealing to businesses and immigrants trying to create wealth for themselves. If a business has the option of a welfare state that will tax income heavily or a country that has lower tax rates they will almost never choose the welfare state. The personal incentive to start a business in a welfare state is gone once an individual learns that the government will take a large piece of their income. It would be best to start a business in another country where the government does not punish you for becoming successful. The detraction of business keeps the economy stagnant and makes the future of the country less appealing to potential investors. The tax regime in the U.K. has made 20 percent of big businesses consider leaving. In addition, 64 percent of big businesses felt that the tax burden has increased over the past 12 months. 10The taxation used to support the government has made the United Kingdoms competitiveness in the business world decrease. Without these businesses the U.K. may have an even bigger unemployment and welfare problem than they do now. The same idea can be applied to immigration. An individual seeking to make a new start will not choose a country where a large portion of their hard earned money will be taken by the government. Scaring off immigrants stops a country from growing economically. According to Diane Roth of Manhattan Institute, “immigrants make the economy more efficient and raise the wages of native-born citizens.”11 They do this by doing many of the non-skilled jobs that are needed to run a many businesses and to keep the country’s infrastructure sound. Welfare states scaring off these immigrants makes the future of their economy uncertain. The welfare state creates conditions that are not ideal for the type of wealth creation sought out by businesses and immigrants.
Conclusion
The means of Creating and maintaining a welfare state have poor social and economical consequences on a country that can be seen in the United Kingdom. Welfare states encourage economic inactivity, punish success, scare away business and immigration, and cause social fractures. The welfare state is not a solution for a country’s unemployment and poverty problems. It is only a temporary Band-Aid that will create even more headaches in the future. Losing the wealth creation incentive only creates more economic and social woes for a country. Governments must be careful with their welfare policies so that they do not harm the country’s free market and wealth creation.