Who Pays Taxes, and What Do They Get?

Since both taxes and spending affect the well-being of Americans—taxes make people worse off, and government spending on useful things makes people better off—it’s not enough to simply ask which Americans bear the nation’s tax burden. We also need to know which Americans receive the most dollars of government spending. To address that issue, the Tax Foundation just released a study titled "Who Pays America’s Tax Burden, and Who Gets the Most Government Spending?" The analysis shows:

1. America’s lowest-earning one-fifth of households receives $8.21 in government spending for each dollar of taxes paid in 2004. Households with middle-incomes receive $1.30 per tax dollar, and America’s highest-earning households receive $0.41 per tax dollar.

2. Government spending targeted at the bottom 60% of U.S. households is larger than what they paid in taxes in 2004. Overall between $1.03 trillion and $1.53 trillion was redistributed downward from the two highest income quintiles to the three lowest income quintiles through government taxes and spending, year—a fact that’s not obvious by looking at taxes alone.

Policy Conclusions:

Many lawmakers favor sharply progressive taxes and oppose any tax reform plan that cuts the level of tax progressivity—such as a single-rate income tax or a retail sales tax—despite the economic benefits of those tax reforms.

But tax progressivity is only half the picture, and any amount of progressivity can be achieved by some mix of tax and spending changes. That means it’s possible to move toward a flatter, more economically neutral tax code, without reducing the progressivity in the fiscal system. In that case, lawmakers’ opposition to economically efficient tax reforms no longer makes sense.