Content area
Full Text
Introduction and Overview
Governments at all levels throughout the United States impose taxes in order to finance spending programs intended to benefit their citizens. A common question posed about these fiscal policies is how their costs and benefits are distributed across different subgroups of the population, most notably by income group. In other words, how much do people pay in taxes versus how much do they receive in government spending?
While the distribution of the tax burden is a frequent topic of debate-especially in Washington, DC-there is little attention given to the distribution of spending programs. And rarely has there been any attempt to analyze the totality of tax and spending programs across all levels of government. This study seeks to fill this void by analyzing the distribution of both taxes and government spending at both the federal and state and local levels.
The goal is to compare how much families at various income levels pay in all taxes-from state and local motor vehicle licenses to the federal individual income tax-to how much they receive from government spending programs-from cash and in-kind transfer payments like Social Security and Medicaid to public goods like national defense. Once we understand the difference between how much families pay in taxes and how much governments spend on them, we can measure how much tax and spending policies combine to redistribute income between different groups of Americans.
We find that the combined effect of government tax and spending policies is to redistribute more than $2 trillion annually from families in the top 40 percent of the income distribution to those in the bottom 60 percent. Federal tax and spending policies comprise more than two-thirds of the total amount of redistribution and contributed to a slight increase in the total amount of redistribution over the past decade.
Interestingly, we find that the biggest net beneficiaries of this increase in redistribution from 2000-2012 are middleincome families and working lower-income families (those in the second quintile). These were the families most targeted by economic stimulus programs and more generous tax credits. Of the $2 trillion in income that was redistributed in 2012, nearly half was paid for by families in the top 1 percent.
These findings have particular relevance to the current...