Facts on Redistribution and the Impact of Obama Policies

September 21, 2009

Attempts to put “price tags” on health care and cap-and-trade proposals vary among agencies and think tanks, but one vital question has been left unanswered: How would these policies affect what families pay in taxes and how much government spending benefits they receive in return? New analysis from the Tax Foundation shows that President Obama’s policies will increase the number of families who are net “receivers” of federal government spending — those who get more back than they pay in taxes.

As everone would expect, the lowest-earning ten percent of American families receive much more in federal spending than they pay in tax. What’s more surprising is that the same is true for each succeeding 10-percent stripe of the income spectrum, all the way up above the median income. Even if none of President Obama’s major initiatives on taxes, health care and global warming are enacted, families in the 50-60 percentile will receive more in federal spending than they pay in federal tax. If Obama’s principal initiatives do become law, even the next highest 10% group, those in the 60%-to-70% group, will receive more in federal spending than they pay in tax.

This means the “givers,” or those who pay more in taxes than they receive in spending benefits, will shrink from the top 40 percent of families today to the top 30 percent by 2012, according to new results from the Tax Foundation’s “Fiscal Incidence” project, which compares the total amount of federal taxes families pay (such as income taxes, excise taxes, payroll taxes, etc.) to the total amount of government spending they receive (such as entitlement benefits, defense spending, public works, etc.). Under Obama’s policies, the top 30 percent of families will be redistributing more than $1 trillion to the bottom 70 percent, compared to the $826 billion currently being redistributed from the top 40 percent to the bottom 60 percent.

In the slideshow below, Tax Foundation President Scott Hodge explains the concept of income redistribution and discusses who currently pays for government programs and services, who benefits, and how new policies will change that balance.

Learn more about the latest results from the Tax Foundation’s “fiscal incidence” model in Tax Foundation Fiscal Fact No.189, “Accounting for What Families Pay in Taxes and What They Receive in Government Spending,” and Tax Foundation Fiscal Fact No. 190, “Basic Facts on Redistribution and the Impact of Obama’s Policies.”

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