Fiscal Fact No. 209
This TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation Fiscal Fact takes a preliminary look at the distributive effects of President Obama’s budget, released last week. Using the Tax Foundation’s Fiscal Incidence Microsimulation Model, we are able to estimate the level of income redistribution in both existing and proposed federal fiscal policies and thereby estimate the change in income redistribution that would come about as a result of a given policy change.
Even though Pres. Obama’s budget is titled “Fiscal Year 2011 Budget,” it includes estimates for his policy proposals over the next ten years (2011-2020). Therefore, this Fiscal Fact looks at fiscal year 2012 so as to avoid complications that come about as a result of the fiscal-calendar year split of the Bush tax cuts set to expire on Dec. 31, 2010. For simplicity, the baseline used in this Fiscal Fact is the same baseline used in Pres. Obama’s budget. Also, due to uncertainty regarding the specifics involved, we exclude from this analysis three “allowance” categories in the president’s budget: jobs initiative allowance, health care reform allowance, and climate change allowance.
Our measure of income redistribution is relatively simple as we ask two hypothetical questions:
(1) How much in federal taxes does a given income group pay under a given set of tax policies?
(2) How much in federal taxes would that income group pay under a benefit principle system of taxation whereby a given family’s tax share was equal to its share of the benefits from government spending?
The difference between the answers to these two questions is our measure of income redistribution. Before we present the results, we should answer two commonly asked questions pertaining to the methodology. First, we assume that national defense benefits each family in proportion to its share of cash income received. Second, we assume that the deficit is borne by today’s families and is financed by a combination of proportional tax increases and proportional spending reductions (entitlements weighted more heavily). For a further discussion of the methods used in this report, see our Special Report released on last year’s budget.
Results
Our results are presented in the three tables below. Table 1 summarizes the average change in income redistribution from Obama’s policies. Table 2 provides somewhat more detail, including a tax and spending breakdown, while Table 3 shows the aggregate effects of federal fiscal policies on the distribution of income.
Overall, the results show Pres. Obama increasing the level of income redistribution to low-and-middle income families, while families in the top 1 percent of the income spectrum would face higher taxes and therefore more redistribution. The primary driver of this result is Pres. Obama’s expiration of the Bush tax cuts for high-income families, as well as his proposed 28 percent value limitation on itemized deductionItemized deductions allow individuals to subtract designated expenses from their taxable income and can be claimed in lieu of the standard deduction. Itemized deductions include those for state and local taxes, charitable contributions, and mortgage interest. An estimated 13.7 percent of filers itemized in 2019, most being high-income taxpayers. s.
Table 1: Summary of Income Redistribution in Fiscal Year 2012 Pre- and Post-Obama Budget Policies
|
Market Income Percentile |
Average Income Redistribution |
Average Income Redistribution |
Change in Income Redistribution |
|
0-10% |
17,467 |
17,962 |
494 |
|
10-20% |
10,299 |
11,148 |
850 |
|
20-30% |
8,759 |
9,597 |
838 |
|
30-40% |
6,105 |
6,721 |
616 |
|
40-50% |
5,331 |
5,766 |
435 |
|
50-60% |
3,172 |
3,694 |
522 |
|
60-70% |
-203 |
475 |
678 |
|
70-80% |
-3,897 |
-2,952 |
946 |
|
80-90% |
-10,720 |
-9,172 |
1,548 |
|
90-95% |
-16,864 |
-14,316 |
2,548 |
|
95-99% |
-48,649 |
-48,404 |
245 |
|
99-100% |
-407,943 |
-509,257 |
-101,314 |
|
ALL |
0 |
0 |
0 |
|
Exhibit: |
|||
|
Top 20% |
-39,965 |
-43,643 |
-3,678 |
|
Top 10% |
-69,279 |
-78,195 |
-8,916 |
|
Top 5% |
-121,345 |
-141,648 |
-20,304 |
|
Top 1% |
-407,943 |
-509,257 |
-101,314 |
Table 2: Distributional Impact on Average Families of Proposed Policies in President Obama’s Budget, Fiscal Year 2012
|
Market Income |
Average Market Income |
Obama Policy |
Change from OMB Baseline |
||||
|
Average Tax |
Average Spending |
|
Average Tax |
Average Spending |
|
||
|
0-10% |
5,356 |
1,804 |
19,766 |
17,962 |
-35 |
459 |
494 |
|
10-20% |
19,591 |
4,066 |
15,215 |
11,148 |
-55 |
795 |
850 |
|
20-30% |
33,244 |
6,691 |
16,288 |
9,597 |
-126 |
711 |
838 |
|
30-40% |
47,103 |
9,818 |
16,538 |
6,721 |
-234 |
382 |
616 |
|
40-50% |
63,517 |
13,052 |
18,818 |
5,766 |
-364 |
71 |
435 |
|
50-60% |
83,606 |
17,544 |
21,238 |
3,694 |
-539 |
-17 |
522 |
|
60-70% |
107,555 |
22,929 |
23,405 |
475 |
-758 |
-80 |
678 |
|
70-80% |
136,622 |
29,757 |
26,805 |
-2,952 |
-1,094 |
-148 |
946 |
|
80-90% |
182,188 |
41,271 |
32,099 |
-9,172 |
-1,797 |
-249 |
1,548 |
|
90-95% |
254,912 |
57,174 |
42,858 |
-14,316 |
-2,901 |
-352 |
2,548 |
|
95-99% |
443,197 |
113,145 |
64,741 |
-48,404 |
-968 |
-723 |
245 |
|
99-100% |
2,311,279 |
778,178 |
268,921 |
-509,257 |
97,570 |
-3,744 |
-101,314 |
|
ALL |
99,575 |
24,312 |
24,312 |
0 |
189 |
189 |
0 |
|
Exhibit: |
|||||||
|
Top 20% |
360,377 |
96,948 |
53,305 |
-43,643 |
3,131 |
-547 |
-3,678 |
|
Top 10% |
538,985 |
152,756 |
74,561 |
-78,195 |
8,071 |
-845 |
-8,916 |
|
Top 5% |
821,166 |
247,701 |
106,053 |
-141,648 |
18,970 |
-1,334 |
-20,304 |
|
Top 1% |
2,311,279 |
778,178 |
268,921 |
-509,257 |
97,570 |
-3,744 |
-101,31 |
Table 3: Distributional Impact on Family Income Groups (Aggregate) of Proposed Policies in President Obama’s Budget, Fiscal Year 2012
|
Market Income |
Market Income (millions) |
|
Income After Redistribution |
|
|||
|
OMB Baseline |
OMB Policy |
||||||
|
|
Share of Income |
|
Share of Income |
||||
|
0-10% |
94,011 |
0.7% |
400,608 |
2.8% |
409,286 |
2.8% |
8,678 |
|
10-20% |
344,024 |
2.4% |
524,864 |
3.6% |
539,788 |
3.7% |
14,924 |
|
20-30% |
555,082 |
3.9% |
701,340 |
4.9% |
715,326 |
5.0% |
13,986 |
|
30-40% |
736,851 |
5.1% |
832,348 |
5.8% |
841,987 |
5.8% |
9,638 |
|
40-50% |
932,215 |
6.5% |
1,010,459 |
7.0% |
1,016,839 |
7.1% |
6,381 |
|
50-60% |
1,090,963 |
7.6% |
1,132,357 |
7.9% |
1,139,166 |
7.9% |
6,809 |
|
60-70% |
1,269,713 |
8.8% |
1,267,317 |
8.8% |
1,275,325 |
8.8% |
8,008 |
|
70-80% |
1,532,643 |
10.6% |
1,488,924 |
10.3% |
1,499,531 |
10.4% |
10,608 |
|
80-90% |
1,994,960 |
13.8% |
1,877,571 |
13.0% |
1,894,527 |
13.1% |
16,956 |
|
90-95% |
1,387,724 |
9.6% |
1,295,917 |
9.0% |
1,309,789 |
9.1% |
13,871 |
|
95-99% |
1,937,473 |
13.4% |
1,724,802 |
12.0% |
1,725,872 |
12.0% |
1,070 |
|
99-100% |
2,562,874 |
17.8% |
2,110,524 |
14.6% |
1,998,182 |
13.9% |
-112,343 |
|
ALL |
14,412,829 |
100.0% |
14,412,829 |
100.0% |
14,412,829 |
100.0% |
0 |
|
Exhibit: |
|||||||
|
Top 20% |
7,883,031 |
54.7% |
7,008,814 |
48.6% |
6,928,369 |
48.1% |
-80,445 |
|
Top 10% |
5,888,071 |
40.9% |
5,131,244 |
35.6% |
5,033,842 |
34.9% |
-97,401 |
|
Top 5% |
4,500,347 |
31.2% |
3,835,326 |
26.6% |
3,724,054 |
25.8% |
-111,273 |
|
Top 1% |
2,562,874 |
17.8% |
2,110,524 |
14.6% |
1,998,182 |
13.9% |
-112,343 |