Income Redistribution

The Congressional Budget Office released a report today called “The Distribution of Household Income and Federal Taxes, 2010.”  I know.  Not exactly the most exciting title in the world.  But it contains some pretty interesting information.  The big headline I keep seeing is that the bottom 40% of households had an average federal income tax of -9.1%.  Yes, that’s right, it’s a negative rate, which means those households got more in refundable tax credits from the government than they paid in income taxes.  And that’s the average for the bottom 40% of households.  At the extreme, for the bottom 5% of households, the rate was below -15%.

This shouldn’t surprise us, really.  We talk about income redistribution, and that is precisely what this is.  This article explains it pretty well.  And, of course, there are federal taxes other than income.  When you factor in all the other kinds of taxes – payroll taxes, or excise taxes on gas and tobacco, for example – the rate for the bottom 20% is no longer negative.  Of the total federal taxes collected, the bottom 20% pay 0.4%.  The top 20% pay 51.9%.

I’m not going to argue that everyone should pay the same amount of tax, but I do think that everyone should have some skin in the game.  If taxes only hit other people, then I’ll always want them to go up to pay for more programs for me; if I feel those increased taxes, then I’ll be more likely think twice about whether the government is really the best source of assistance, about whether an ever expanding state is a good thing.  When I’m paying for it, I’m invested, and I’m more likely to demand that my government not waste money.  I’m more likely to hold government to account.  Could part of our current spending problem be that so many voters have little incentive to hold their elected officials to account, because someone else is always picking up the tab?

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