CBO Report Confirms that the Federal Government Redistributes a Substantial Amount of Income

December 09, 2013

Last week, the Tax Policy Center held an event called “Measuring the Distribution of Federal Spending and Taxes.” At this event, Gerald Prante presented his findings from the Tax Foundation study called “A Distributional Analysis of Fiscal Policies in the United States, 2000-2012.” Our report finds that the federal government redistributes more than $2 trillion in income in 2012.

Alongside him, two members of the Congressional Budget Office presented their report, “The Distribution of Federal Spending and Taxes in 2006.”

Besides praising the Tax Foundation study on income redistribution, they presented their findings. They also conclude that the federal government redistributes a significant amount of income.

The report looks at how taxes paid and spending received breaks down by three household types (figure below). They find that on a per-household basis, elderly receive on net (spending minus taxes) $20,000 from the federal government. Meanwhile, nonelderly households with children end up paying on net $2,000 per household. Nonelderly households without children end up paying the most at $7,000 per household.

They also break down taxes paid and spending received by income quintile. When looked at this way, the redistribution becomes very clear. According to their analysis, those in the lowest quintile received $22,000 in spending minus taxes. In contrast, taxes exceeded spending by $56,000 in the highest quintile.

It is also important to note that when they breakdown the taxes paid and spending received by income quintile, they remove elderly households. They do this due to the fact that they use the income measure “annual market income”, which “is not a good measure of the resources available to them due to high reliance on Social Security and savings.”

Reports such as ours and the CBO report are very important in the context of tax reform. Both politicians and the public need to understand exactly how much redistribution already occurs due to or federal government in order to make better decisions about how tax reform should affect the progressivity of our tax code and the ability to account for this progressivity on the spending side of the budget.

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