Washington, DC, September 21, 2009 -- New reports from the Tax Foundation show that President Obama's policy proposals will increase the financial dependence of middle-income Americans on the federal government.
"Attempts to put 'price tags' on health care and cap-and-trade proposals vary among government agencies and think tanks," said Tax Foundation President Scott Hodge, "but one vital question has been left unanswered: Counting all federal taxes and spending, how would these policies affect American families' financial ties to the government? The foundation's new 'fiscal incidence model' answers that question." "Currently the bottom 60 percent of the income spectrum receives more in federal spending than they pay in federal taxes," said Hodge. "By 2012, if President Obama's proposals on taxes, health care and climate change become law, 70 percent of American families will, as a group, be receiving more in federal spending than they pay in federal tax."
Even if none of Obama's policies becomes law, the extent of current income redistribution is remarkable: The top-earning 40 percent of families will transfer $826 billion to the bottom 60 percent in 2012. If Obama's policies become law, the federal government will redistribute nearly $1 trillion from the top-earning 30 percent of families to the bottom 70 percent (those earning up to $109,000). In fiscal year 2010, the lowest-income families will receive $10.44 in federal spending for every dollar in taxes they pay. Middle-income families, who are the targeted beneficiaries of many Obama policies, will receive $1.15 in government spending benefits for every dollar they pay in taxes.
When only taxes are analyzed, Obama's policies lead to tax increases for a curious mix of rich and poor families. Families earning less than $23,700 are disproportionately affected by regressive cap-and-trade policies and higher tobacco taxes, and those earning more than $280,000 will see their tax payments go up because of higher income tax rates. On net, however, when spending is included, the lowest-income households gain more than $2,200 while the highest-income families lose more than $127,000.
"The taxes paid by the wealthiest families swamp any benefits they receive from government, even when counting national defense as largely benefitting high-income people," Hodge said. "As lawmakers consider important and far-reaching tax and spending policies such as health care and cap-and-trade, they should have a basic understanding of what might be called a 'fiscal accounting' of how government benefits families receive compare to what they pay in taxes. It's only within this framework that properly informed decisions can be ma
WHAT THIS ALL MEANS: Federal tax and spending policies are already very heavily tilted to the poor and middle-class, even before we consider the Obama administration's budget proposals. The 2010 statistics:
- The lowest-income families will be targeted for $10.44 in spending for every dollar they pay in taxes.
- Middle-income families receive $1.15 for every dollar they pay in taxes.
- The top 40 percent of families pay more in taxes as a group than they receive in government spending benefits. In the case of the highest-income families, they are currently targeted for 43 cents in government spending for every dollar they pay in taxes.
Obama's tax and spending policies will further shift the tax burden toward upper-income families and spending policies to lower- and middle-income families. Surprisingly, Obama's policies will increase the number of families who are net "receivers" of government spending (those who get more back than they pay in taxes). As a group, the bottom 70 percent of families will be net receivers of government spending under Obama policies, up from the 60 percent who are collectively net receivers under today's policies. Of course this means that the number of "givers" will collectively shrink from the top 40 percent of families to the top 30 percent.
"Attempts to put 'price tags' on health care and cap-and-trade proposals vary among government agencies and think tanks," said Tax Foundation President Scott Hodge, "but one vital question has been left unanswered: Counting all federal taxes and spending, how would these policies affect American families' financial ties to the government? The foundation's new 'fiscal incidence model' answers that question." "Currently the bottom 60 percent of the income spectrum receives more in federal spending than they pay in federal taxes," said Hodge. "By 2012, if President Obama's proposals on taxes, health care and climate change become law, 70 percent of American families will, as a group, be receiving more in federal spending than they pay in federal tax."
Even if none of Obama's policies becomes law, the extent of current income redistribution is remarkable: The top-earning 40 percent of families will transfer $826 billion to the bottom 60 percent in 2012. If Obama's policies become law, the federal government will redistribute nearly $1 trillion from the top-earning 30 percent of families to the bottom 70 percent (those earning up to $109,000). In fiscal year 2010, the lowest-income families will receive $10.44 in federal spending for every dollar in taxes they pay. Middle-income families, who are the targeted beneficiaries of many Obama policies, will receive $1.15 in government spending benefits for every dollar they pay in taxes.
When only taxes are analyzed, Obama's policies lead to tax increases for a curious mix of rich and poor families. Families earning less than $23,700 are disproportionately affected by regressive cap-and-trade policies and higher tobacco taxes, and those earning more than $280,000 will see their tax payments go up because of higher income tax rates. On net, however, when spending is included, the lowest-income households gain more than $2,200 while the highest-income families lose more than $127,000.
"The taxes paid by the wealthiest families swamp any benefits they receive from government, even when counting national defense as largely benefitting high-income people," Hodge said. "As lawmakers consider important and far-reaching tax and spending policies such as health care and cap-and-trade, they should have a basic understanding of what might be called a 'fiscal accounting' of how government benefits families receive compare to what they pay in taxes. It's only within this framework that properly informed decisions can be ma
WHAT THIS ALL MEANS: Federal tax and spending policies are already very heavily tilted to the poor and middle-class, even before we consider the Obama administration's budget proposals. The 2010 statistics:
- The lowest-income families will be targeted for $10.44 in spending for every dollar they pay in taxes.
- Middle-income families receive $1.15 for every dollar they pay in taxes.
- The top 40 percent of families pay more in taxes as a group than they receive in government spending benefits. In the case of the highest-income families, they are currently targeted for 43 cents in government spending for every dollar they pay in taxes.
Obama's tax and spending policies will further shift the tax burden toward upper-income families and spending policies to lower- and middle-income families. Surprisingly, Obama's policies will increase the number of families who are net "receivers" of government spending (those who get more back than they pay in taxes). As a group, the bottom 70 percent of families will be net receivers of government spending under Obama policies, up from the 60 percent who are collectively net receivers under today's policies. Of course this means that the number of "givers" will collectively shrink from the top 40 percent of families to the top 30 percent.
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