Define the Tipping Point

by Sean Purcell

Real Estate Renaissance Man

Author website

The following began as a comment to a great post put up by Greg Swann recently, in which he excerpted a terrific article from Mark Steyn on income taxes and suckers:

…by 2004, 20% of U.S. households were getting about 75% of their income from the federal government… how receptive would they be to a pitch for lower taxes, which they don’t pay, or lower government spending, of which they are such fortunate beneficiaries? How receptive would another fifth of households, who get about 40% of their income from federal programs, be to such a pitch?

I believe My Styne is talking about the “tipping point” here, something I’ve also been talking about since before the election in 2008. Once enough people are dependent on the government, we reach a tipping point from which there is no purposeful return; only failure and rebirth. This is not news.

What’s interesting (at least to me) is the actual equation marking this tipping point. Obviously if more than 50% of the populace received 100% of their income (or benefits) from the government, we’d be over the tipping point. Not much of a stretch there, but not much of a definition either. I suggest the tipping point is well below the “50% get 100%” threshold.

So what is the level? This strikes me as a very important number – and concept – to know. Where is the line if it’s not “50% getting 100%:”? For argument’s sake, let’s say we have a voting block that will endorse politicians and policies which benefit themselves. Is receiving 75% of their income from entitlements enough to effect that vote? 60%? 45%? I suggest that the block crumbles at 20%, but is monolithic at 75%, so the answer lies somewhere in between. A 30% loss of income would be pretty bad for most people, but may not be bad enough that they would forsake their principles and beliefs. At 40% though… I think we’re dialing in the range.

On top of this, we should take into account the actual voting numbers of the population. How is the tipping point affected if only 60% of the population regularly votes? More importantly, what % of people – on the dole for at least 40% of their income – regularly votes?

I don’t have the economic access or statistical model to perform a proper study, but I’m surprised I haven’t seen something like this from one of the pro-capitalist think tanks. For instance, we may discover that once 40% of the total population receives, on average, more than 40% of their income from government sources, we’ve reached a tipping point. Translation: we could, at that point, reliably expect more than half of likely voters to vote in favor of maintaining their entitlements. Knowing this would provide a clear line in the sand of capitalism and democracy.

Perhaps we are already there. If I were to guess, I would say my 40/40 estimate is not far off. How close are we to 40 and 40? Politicians on both sides of the aisle have clearly understood this concept for some time. Today’s political campaigns run on only two real messages: “Here’s how much I’ll give you,” or “Here’s why the other candidate won’t be able to give you as much as me.” But what if we knew where the line was? Would it make a difference? Would we act on it? Is it too late?