The Welfare States of America – and Wyoming

by Wyoming Liberty Group Staff

The persistent deficits in the federal budget, as well as in the Wyoming state finances, are painful reminders of government overspending. Understandably, we often hear calls for drastic spending reductions, and they will become necessary soon enough, unless we begin reforming our state and local governments in the direction of fiscal sustainability.

If we launch such reforms while there is still time – in other words before we are thrown into fiscal-panic mode – we can reduce the burden of our government in a prudent, predictable fashion. The first step toward doing so is to recognize that some areas of government spending are more important than others, for different reasons: government profligacy is not caused by the existence of government per se, but by what types of functions we assign to government.

The most growth-prone form of government spending is that which we commonly know as the welfare state. The programs that belong under this banner provide services and other entitlements directly or indirectly for ideological purposes – bluntly, based on the economic status of the recipient. These welfare-state functions account for more than half of all state and local government spending in the country (and two thirds of federal government spending).

In Wyoming, 54.7 percent of state and local government outlays can be classified as "welfare-state spending":

By national standards, our state's welfare-state share is moderate:

Figure 1

Source of raw data: Census Bureau

In addition to welfare-state programs, or entitlements, states and local governments also spend money on functions that could best be classified as "grey zone" expenditures. These are programs that are not explicitly redistributive in nature, and therefore do not belong in the entitlement category, but they are also not outright core functions of government. This grey-zone spending accounts for 28.9 percent of what the state of Wyoming and our local governments use our tax dollars for:

The third and last category, core functions, account for 16 percent of state and local government spending:*

In summary, then, of total state and local government spending in Wyoming,

• Welfare-state programs account for 54.7 percent;
• Grey-zone spending accounts for 28.9 percent; and
• Core government functions account for 16 percent.

If we want to reduce government spending, it is clear from available data that the best path is to concentrate government on its core functions. It is not enough to simply slim down entitlement programs; states with more lenient – fiscally less dominant – welfare states tend to divert more of their tax dollars to the grey-zone functions. Figure 2 reports data from all 50 states, grouped into quintiles for easier overview. Notably, when the welfare-state share of total outlays falls – as the red columns show – there is a rise in the share of spending going toward the grey-zone category (grey columns). At the same time, with the exception of the fifth quintile, core functions (blue) tend to remain relatively constant:

Figure 2

Source of raw data: Census Bureau

The relative steadiness of core-function spending suggests that a government focused on those functions, and only those functions, would remain fiscally sustainable by the very nature of those functions. This is an important point to consider in any effort to reform government in Wyoming toward fiscal sustainability.

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*) Due to rounding errors, there is a 0.4 percent discrepancy in the total tally of spending on all government functions.