Sunday, March 25, 2007

The Other Side of the Coin

I came across this report on government spending being distributed across different income groups in the United States. The answers in the report are not surprising: the upper class pays far more money in taxes than what they receive back in government spending. The opposite applies to the lowest income group. A few nuggets:

-America’s lowest-earning one-fifth of households receives roughly $8.21 in government spending for each dollar of taxes paid. Households with middle-incomes receive $1.30 per tax dollar, and America’s highest-earning households receive $0.41 per tax dollar

-As is clear from the figures, defense, Social Security, Medicare, Medicaid and various other types of transfer payments dominate federal spending. At the state and local level, spending on public schools, police and fire protection, general government administration and the state portion of Medicaid dominates government

-state and local government spending generally tracks state and local tax burdens
much more closely than federal taxes and spending. In other words, the more taxes people pay to state and local governments, the more spending they generally get back in return.

-For example, many lawmakers favor sharply progressive taxes—that is, they favor taxes that fall more heavily on high earners than those with low incomes. These lawmakers usually oppose any tax reform plan that cuts the level of tax progressivity—such as a single-rate income tax or a retail sales tax—despite the economic benefits of those tax reforms.

-But once we see that tax progressivity is only half the picture, and that progressivity can be achieved through either taxes or spending, these lawmakers’ opposition to economically efficient tax reforms no longer makes sense. Any amount of progressivity can be achieved by some mix of tax and spending changes. That means it’s possible to move toward a flatter, more economically neutral tax code, without reducing the progressivity in the fiscal system.

Read the rest for yourself here

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