New Study Analyzes Distribution of Taxes and Spending Together

March 23, 2007

The Tax Foundation has released the first Special Report based on a comprehensive study conducted on the issue of who pays taxes and who receives government spending. The project attempts to answer these two crucial questions regarding tax burdens and spending received by different income groups, age groups, and other demographic variables.

Fiscal policy at all levels of government is often driven by a desire for a redistribution of resources from some group of households to others, based on various factors, such as income, age, educational status, lifestyle choices, etc. This work presents an estimate of how much of that redistribution actually occurs, as well as how different types of taxes and spending affect the final distributions.

Income distributions are typically what dominate fiscal issue discussion in Washington. Any time tax policy is discussed on Capitol Hill (as well as in most state houses), the issue of progressivity and regressivity of tax changes is discussed. And the degree of progressivity is typically measured using official statistics produced by agencies such as the Congressional Budget Office, Joint Committee on Taxation, and the Treasury Department’s Office of Tax Analysis. However, each of these agencies ignores half the issue. That half is spending distributions.

As Eugene Steuerle of the Urban Institute wrote in Tax Notes:

Unfortunately, these comparisons [of only the distribution of taxes] are incomplete. To know the effect of tax changes on the distribution of income, it is necessary to take into account what the government does with the money.

This project seeks to fill that void by presenting estimates of the progressivity of both taxing and spending. It shows that if the official estimators were to include spending distributions in their official estimates of the impacts on various income groups of changing tax and spending policy, a much more efficient fiscal system could develop, even if the overall progressivity of the fiscal system remained the same.

For a complete and thorough academic-style discussion of the issue including over 70 tables and charts covering nearly every aspect of spending and taxation at all levels of government, read Who Pays Taxes and Who Receives Government Spending? An Analysis of Federal, State and Local Tax and Spending Distributions, 1991 – 2004.

For a quick summary of the main findings of the study such as the amount of spending received and taxes paid by different income groups, read Who Pays America’s Tax Burden, and Who Gets the Most Government Spending?

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