Net Federal Tax Payers

While it’s true that almost everyone pays some kind of tax every year, even if “just” payroll, property, or sales/excise taxes, a small and shrinking share of the country are actually “net tax” payers.  In other words, they recieve more in direct transfers every year (excluding the costs of their share of public goods like roads, military, police, etc) than they pay in taxes each year.

Although this has to be true for some fraction of the population in order to give meaningful subsidy to, say, the poor or a meaningful safety net for those in temporary need, the size and scope of this issue makes it a very real fiscal problem at a federal, state, and local level.

Organizations like the Tax Foundation have studied analyzed this issue at a total governmental level (federal, state, and local) and provided figures to show the net impact.

See:  WHO PAYS TAXES AND WHO RECEIVES GOVERNMENT SPENDING? AN ANALYSIS OF FEDERAL, STATE AND LOCAL TAX AND SPENDING DISTRIBUTIONS, 1991-2004

[See page 31 – Figure 8 and 9]

Including Public Good


Excluding public goods

However, since some people may think the Tax Foundation is simply putting a partisan spin on this issue I thought it’d be worthwhile to investigate this using the Congressional Budget Office (CBO) data for a relatively impartial perspective.

 

CBO data: 1979-2009

This measure isn’t perfect, since they do not include state/local taxes, however it does provide a pretty good perspective on what is happening at the federal level (where most spending and taxing occurs) and it has the additional advantage of allowing us to see the evolution of this change over 30 some years.

Comments: Notice the 2nd, 3rd, and even 4th quintiles are moving from paying into the system to being significant net beneficiaries.   Meanwhile the 1st quintile holds relatively steady and the top (Q5) shows, if anything, a trend towards paying more in.

This shows the same data in line form so you can see the trends more clearly.

With higher incomes included….

This shows the net transfer/tax paid by each group as a percentage of their market incomes. 

Some observations

Q1: trends somewhat down in proportional terms, but this is largely because their small market income grew (on roughly the same transfer).

Q2-95th percentile: trends away from paying into the system (and the lower end into being significant net beneficiares even as a share of income on rising incomes).

96-99th and top 1%: about the same

Put bluntly, our tax code has treated the poor and top few percent about the same in relative and absolute terms.  What’s changed is that the broad middle class in this country have basically become net drags on our federal budget through of combination of decreasing taxes and increasing transfers.

Some more detail by quintile

The top 1%

note: unlike the broader quintile groups, they are obviously represent a mere fraction of the the population, so their large net tax doesn’t come close to offsetting the deficit incurred at lower income levels)

Oh, and lest you think this is shift in the net tax burden is strictly a function senior entitlements….

Though I don’t have the granular data for household type on transfers to render the same calculations, the CBO does provide the effective federal tax rates for non-elderly childless households and households with children which indicate similar patterns in net transfers (though senior-oriented programs like Medicare and CMS are probably not there, there have been various tax credits, tax cuts, and subsidies created for these households as well that achieve a similar result)

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