Ever since presidential candidate Barack Obama told “Joe the Plumber” in 2008 he hoped to “spread the wealth around,” the U.S. government has found more and more ways to do exactly that.
According to a study by the nonpartisan Tax Foundation, federal tax and spending policies now redistribute more than $1.5 trillion in income from the top 40 percent of American families to the bottom 60 percent.
State and local policies tack on yet another half-trillion in income redistribution, the Foundation asserts.
The numbers are calculated by comparing how much people pay in taxes of all kinds – from gas and income taxes to tariffs and business taxes – to how much they receive in spending – from welfare and national defense to roads and solar energy subsidies and so forth.
“Some families are net beneficiaries of federal spending, meaning they get back more than $1 for every $1 they pay in federal taxes,” explains a free, downloadable chart book on the Tax Foundation’s findings. “Other families are net contributors to government, meaning they get less than $1 back for every $1 they pay in taxes. Once we measure the results for every family, we can calculate how much tax and spending policies combine to redistribute income from some Americans to others.”
In fact, the Foundation discovered, the lowest with the lowest 20 percent of earners in the U.S. receive $8.13 in government spending for every dollar paid in taxes. However, the top 20 percent of earners receive just 25 cents for every dollar paid in.
The net effect is a massive, federally dictated movement of income from America’s wealthiest households to its poorest.
“More than half of this total ($849 billion) goes to the lowest-income families, while another $453
billion flows to the working poor,” the chart book continues. “Middle-income families as a group receive $225 billion in redistributed income from upper-income Americans.
“The vast majority of this redistributed income is taken from the top 20 percent of families – those earning over $119,698. Of this amount, nearly $650 billion (or 40 percent) is taken from families in the top 1 percent,” the Foundation found.
As the chart below illustrates, families earning under $67,456 are net beneficiaries of government spending, while those making more suffer a net loss.
The Tax Foundation also found the trend toward wealth distribution has only grown more extensive recently, fueled by an increasingly progressive income tax structure, where fewer and fewer Americans pay any taxes at all, while the wealthiest shoulder a growing share of the federal government’s tax burden.
By comparison, in 1985, the Tax Foundation reports, the top 10 percent of taxpayers paid 54.7 percent of the federal tax burden, while the bottom 90 percent paid 45.3 percent. In 2010, the burden paid by the top 10 percent had risen to 70.6 percent of the total, while the bottom 90 percent paid only 29.4 percent.
Furthermore, tax credits and exemptions benefiting the poor have far outpaced tax loopholes and shelters more typically associated with the wealthy.
Today, the Foundation reports, “The top 1 percent of taxpayers pay a greater share of the income tax burden than the bottom 90 percent combined.”
The Tax Foundation is a nonpartisan research organization based in Washington, D.C., that has monitored fiscal policy at the federal, state and local levels since 1937. It’s “State Business Tax Climate Index” generates news articles and political headaches each year by ranking the 50 states annually according to which states’ tax structures are “best for business.”