We’re Already Spreading The Wealth More Than You Think
President-Elect Barack Obama ignited a firestorm of controversy during the final days of the 2008 campaign with his now infamous comments about “spreading the wealth around”. In follow-up interviews, then Senator Obama made it clear that he believes the tax code should be used not only as a means of raising revenue, but also to address fundamental issues of fairness. Critics of our current tax code point to the increasing portion of the nation’s income earned by those in the upper brackets as incontrovertible evidence of growing inequality. Focusing on income alone, however, paints a very incomplete picture.
A cursory examination of the percentage of federal taxes paid by filers in various income brackets demonstrates that those at the upper end of the income spectrum are already paying more than their fair share of the total burden. The true extent of the progressivity is not clear without also examining spending on transfer payments for programs like Social Security, Medicare and Medicaid that explicitly benefit certain groups at the expense of others.
Who Pays Taxes and Who Receives Government Spending is a detailed analysis published by the Tax Foundation. The 123 page report is a bit of a slog for those who aren’t fascinated by the minutiae of tax policy, but it contains a great deal of fascinating information on the burden of federal, state and local taxes borne by households in various income brackets. It also provides a breakdown of government spending as it is directed to those same income brackets. While I disagree with some of the methodologies employed in the study, the overall findings make it abundantly clear that we are already spreading the wealth more generously than Mr. Obama would like us to know.
According to the study, 41.8% of all local, state and federal spending in 2004 consisted of transfer payments. These payments took many forms including housing assistance, Medicare, Medicaid, retirement and disability benefits, unemployment benefits, welfare and social services. Total spending on these items in 2004 amounted to $1.475 trillion. When you look at who receives these benefits, the extent of the redistribution that is already taking place becomes obvious. Households in the lowest 20% of income earners received $8.21 in direct federal, state and local spending for every dollar of taxes paid, while those in the top 20% received $0.41. This results in a net transfer in excess of $1trillion between those in the upper and lower income brackets. Mr. Obama’s use of refundable tax credits to households that already pay little or no federal income tax would increase these numbers substantially.
RELATED POST
How the hell do you get a refundable tax credit if you pay no income taxes? It’s called Welfare.
The Fair Tax would save this country but the Democrats need sheeple to vote for them. So no Fair Tax.