Sunday, March 25, 2007

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.


At 3/25/2007 8:35 AM, Anonymous Anonymous said...

FICA and FUTA (Social Security and Medicare) was the single largest item in the list of federal taxes paid by a household.

In light of this, it seems that another policy conclusion would be that the privatization of some part of Social Security would be the easiest way to help low income households create wealth that can be passed on to their progeny.

I often hear criticism that FICA & FUTA taxes take an unfair percentage of income from low income households.

Why not privatize FICA and allow low income households to use this "disproportionately unfair tax" to accumulate wealth?

Rather than sustaining s system of dependence on government handouts, politicians could foster a system of wealth creation and transference.

At 3/26/2007 12:55 AM, Anonymous Anonymous said...

Privatization leads to further control being given outside of government! The government is supposed to represent the will of the people, giving away the responsibility also means giving away your rights! For a better picture look at the privatization of municipalities in India. No thanks! Say hands off our social security, our government everything! Keep your corperate logo off my country!!!

At 3/26/2007 8:05 AM, Anonymous Anonymous said...

Privatization means control in my hands rather than in the hands of government bureaucrats.

I'm not suggesting the privatization of municipalities. I'm suggesting the privatization of Social Security.

I handle my own life insurance, car insurance, long term care insurance, 401(k) and IRAs, mortgage and home owners insurance.

I can certainly handle the 6.2% the government takes from me for Social Security [12.4% for the self employed].


Post a Comment

<< Home