The Welfare state is a concept where government plays a key role in the protection and promotion of the economic and social well-being of its citizens. This is based on the principles of equality, equitable distribution of wealth, and a sense of the public’s responsibility to its poor. Unfortunately, an average of 70 cents of each dollar budgeted for government assistance goes not to the poor, but to the members of the welfare bureaucracy and other areas while serving the poor. In addition, obtaining the tax revenue necessary for this system also has a cost in time and effort for citizens to comply with the tax laws. The taxes reduce the incentives people have to use resources productively. They work, save and invest less than if the tax rates were lower. This reduces the overall economic output of the economy as well as having a deleterious effect on people’s income. It has been estimated that it costs the government and private sector 65 percent of the net tax revenue just to carry out the taxation. So, overall, if it takes 70 cents for each dollar budgeted and it costs the government 65 percent of the net tax revenue just to carry out the taxation, then it costs the government almost five dollars to deliver one dollar of subsidy to the poor.
In contrast, private charities absorb, on average, one-third or less of each dollar donated, leaving the other two-thirds (or more) to be delivered to recipients. Besides these disheartening numbers, Professor Friedman also covers other areas of difficulty that affect the welfare system as well as the social implications to our society and its people.
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