Taxes Paid vs. Government Spending Received

November 11, 2013

Contact:
Richard Borean, 202-464-5120

Taxes Paid vs. Government Spending Received

Tax and Spending Policies Redistribute $2 Trillion

Washington, D.C., November 11, 2013— The question of who benefits from government spending is just as important as the question of who pays taxes. In other words, how do tax and spending policies redistribute income? A new study from the nonpartisan Tax Foundation reveals that government tax and spending policies combine to redistribute more than $2 trillion from the top 40 percent of families to the bottom 60 percent of families.

The study answers the popular and elusive question of how much do people pay in taxes compared to how much they receive in government spending.

“The goal is to compare how much families at various income levels pay in all taxes—from state and local motor vehicle licenses to the federal individual income tax—to how much they receive from government spending programs—from cash and in-kind transfer payments like Social Security and Medicaid to public goods like national defense,” says Tax Foundation President Scott Hodge. “Once we’ve figured out those numbers, we can measure how much tax and spending policies combine to redistribute income between different groups of Americans.”

Federal tax and spending policies offer the most redistribution, accounting for more than two-thirds of the total amount of redistribution, and contribute to a slight increase in the total amount of redistribution over the past decade.

The biggest beneficiaries of this increase are middle-income families and working lower-income families. These were the families targeted by economic stimulus programs and more generous tax credits. Of the $2 trillion in income that was redistributed in 2012, nearly half was paid for by families in the top 1%.

“These findings have particular relevance to the current tax reform debate because distributional issues are one of the key sticking points to reform proposals that would cut marginal tax rates while broadening the tax base,” says Tax Foundation Adjunct Fellow Gerald Prante, Ph.D. “But tax progressivity is only half the picture, because progressivity can be achieved through both taxes and spending. Thus, if moving to a flatter, more economically neutral tax code reduces progressivity in the tax code, overall progressivity of the fiscal system can be maintained with slight adjustments to federal spending.”

Key Findings:

  • (Chart) American’s lowest-income families receive $5.28 worth of government spending (federal, state, and local) for every $1 they pay in total taxes. Middle-income families receive $1.48 in total spending per tax dollar, while America’s highest-income families receive $0.25 cents in spending for every dollar of taxes paid.
  • (Chart) As a group, the bottom 60 percent of American families receive more back in total government spending than they pay in total taxes.
  • (Chart) Government tax and spending policies combine to redistribute more than $2 trillion from the top 40 percent of families to the bottom 60 percent.
  • (Table) The total amount of redistribution has increased slightly over the past 12 years. Middle-income and working lower-income families were the biggest beneficiaries.
  • Lawmakers can remove equity as an issue in tax reform by matching any loss in progressivity on the tax side with an equal increase in progressivity on the spending side.

Special Report No. 211, “The Distribution of Tax and Spending Policies in the United States” by Gerald Prante Ph.D. and Scott Hodge is available online.

The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact the Tax Foundation's Manager of Communications, Richard Borean at 202-464-5120 or borean@taxfoundation.org.

The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.