Study Shows Similar Amounts of Government Spending Received by Each Income Group
March 29, 2007
The popular study of “Who Pays Taxes and Who Receives Government Spending” that was released by the Tax Foundation last Friday has prompted considerable attention due to the statistic showing that governments overall spend about $8.21 for each dollar of taxes paid on households in the lowest 20 percent of income, while the same number for the highest 20 percent is only 41 cents.
But what is important to note about these findings is that this is not the result of government spending that is distributed in a dramatically pro-poor fashion. While spending is highly progressive when expressed as a percentage of household income, the average dollar amounts of government spending at all levels of government are relatively similar for most income quintiles, with the bottom and top quintiles receiving slightly more than the middle three groups overall.
The following table illustrates this fact. It shows, among other things, that federal spending is much more pro-poor than state and local spending, mostly due to the fact that state and local governments spend more money on services that tend to flow to upper-income households, such as education and transportation, and much less on anti-poverty programs.
Note that — like tax distribution studies from CBO and elsewhere — the above figures represent the spending priorities of governments only and do not attempt to measure the benefit (what economists call “utility”) that different households receive from certain government spending. This issue is addressed in the FAQ published on our study as well as in the full working paper.
Given that some claim that wealthier households “benefit” more from spending on public goods like environmental protection and the operation of the Supreme Court, in the interest of full transparency our study even provides an alternative presentation on pages 97-99 of the working paper showing that even if we assume the government somehow supplies public goods like national defense overwhelmingly to wealthy households, it does not significantly change the basic findings of the study as it relates to taxes and spending together.
For those who haven’t seen the full working paper yet and have only read the layperson’s summary, it’s full of details about what we did, why we did it, and how the conclusions of the study change under a whole host of alternative assumptions.