Under Obama's Policies, Most Families Earning up to $109,000 Will Get More Back from Government Benefits Than They Pay in Taxes

September 21, 2009

Total Amount of Redistribution Will Near $1 Trillion

Washington, DC, September 25, 2009 - "Currently, most families earning up to roughly $86,000 receive more in federal spending than they pay in federal taxes," said Tax Foundation President Scott Hodge. "By 2012, if President Obama's proposals on taxes, health care and climate change become law, families earning up to $109,000 will, as a group, be receiving more in federal spending than they pay in federal tax."

In 2012, Obama's policies will increase the average amount of income redistributed from the top 1 percent of families to more than a half-million dollars per family—$505,000, up from an average of $378,000 today.

Even if none of Obama's policies becomes law, the extent of current income redistribution is remarkable: The top-earning 40 percent of families will transfer $826 billion to the bottom 60 percent in 2012. If Obama's policies become law, the federal government will redistribute nearly $1 trillion from the top-earning 30 percent of families to the bottom 70 percent (those earning up to $109,000).

In fiscal year 2010, the lowest-income families will receive $10.44 in federal spending for every dollar in taxes they pay. Middle-income families, who are the targeted beneficiaries of many Obama policies, will receive $1.15 in government spending benefits for every dollar they pay in taxes.

Incorporating new data from the Mid-Session Review of the President's Budget, as well as recently released aggregate economic data from BEA and new income tax statistics from the IRS, Hodge has authored two new analyses in the Tax Foundation Fiscal Fact series: "Accounting for What Families Pay in Taxes and What They Receive in Government Spending" and "Basic Facts on Redistribution and the Impact of Obama's Policies." The two publications are available online at http://www.taxfoundation.org/legacy/show/25195.html and http://www.taxfoundation.org/legacy/show/25196.html, respectively.

The Tax Foundation's "fiscal incidence" project is a long-term research effort to include federal spending along with taxes in calculations of income redistribution. The standard operating procedure in Washington is to analyze only the distributional impact of taxes, ignoring spending because it is more difficult to quantify.

When only taxes are analyzed, Obama's policies lead to tax increases for a curious mix of rich and poor families. Families earning less than $23,700 are disproportionately affected by regressive cap-and-trade policies and higher tobacco taxes, and those earning more than $280,000 will see their tax payments go up because of higher income tax rates. On net, however, when spending is included, the lowest-income households gain more than $2,200 while the highest-income families lose more than $127,000.

"The taxes paid by the wealthiest families swamp any benefits they receive from government, even when counting national defense as largely benefitting high-income people," Hodge said. "As lawmakers consider important and far-reaching tax and spending policies such as health care and cap-and-trade, they should have a basic understanding of what might be called a 'fiscal accounting' of how government benefits families receive compare to what they pay in taxes. It's only within this framework that properly informed decisions can be made."

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.

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