NCPA - National Center for Policy Analysis

Who Do Federal Tax Polices Benefit?

November 22, 2013

Governments at all levels throughout the United States impose taxes in order to finance spending programs intended to benefit their citizens. A common question posed about these fiscal policies is how their costs and benefits are distributed across different subgroups of the population, most notably by income group, says Scott A. Hodge, president of the Tax Foundation, and Gerald Prante, of the Tax Foundation.

In other words, how much do people pay in taxes versus how much do they receive in government spending?

Federal tax and spending policies drive most of the redistribution in America today.

  • The lowest-income families receive $8.13 in federal spending for every $1 dollar they pay in federal taxes.
  • Middle-income families receive $1.57 in federal spending for every $1 they pay in federal taxes.
  • However, high-income families receive $0.25 cents in federal spending for every $1 they pay in federal taxes.
  • As a group, the bottom 60 percent of American families receive more back in total government spending than they pay in total taxes.
  • Government tax and spending policies combine to redistribute more than $2 trillion from the top 40 percent of families to the bottom 60 percent.
  • The total amount of redistribution has increased slightly over the past 12 years. Middle-income and working lower-income families were the biggest beneficiaries.

The ultimate lesson of this study is that taxes and spending both have distributional effects. When lawmakers focus solely on tax distribution and ignore spending distribution they get a highly distorted picture of how the nation's fiscal system treats Americans in different income groups. Lawmakers can remove equity as an issue in tax reform by matching any loss in progressivity on the tax side with an equal increase in progressivity on the spending side.

Source: Gerald Prante and Scott A. Hodge, "The Distribution of Tax and Spending Policies in the United States," Tax Foundation, November 8, 2013.


Browse more articles on Tax and Spending Issues