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Thursday, December 19, 2013

Bartlett: Who Pays the Taxes and Gets the Benefits

New York Times:  Who Pays the Taxes and Gets the Benefits, by Bruce Bartlett:

In the last two weeks, the Internal Revenue Service, Congressional Budget Office and Census Bureau have released new data illuminating the distribution of federal taxes and spending. They show that the tax and transfer system is a powerful force for the equalization of incomes. ...

The CBO data include all federal taxes paid through 2010. They tell the same story: Effective tax rates on the rich have fallen despite inclusion of the corporate income tax, which the agency estimates is largely paid by those with high incomes – 80 percent is paid by those in the top 20 percent of households.

CBO 5

The CBO report also has data on the receipt of government transfers. They show that the tax and transfer system has a powerful redistributive effect, raising the share of post-tax and transfer income for those at the bottom and reducing it for those at the top. ... New data from the Census Bureau show that a rising share of Americans benefit from government transfer programs. Between the fourth quarter of 2008 and the fourth quarter of 2011, the percentage of Americans participating in transfer programs rose to 49.2 percent from 45.3 percent. Key drivers were a 40 percent increase in the number of people receiving food stamps in what is now called the Supplemental Nutritional Assistance Program, or SNAP, and a 14 percent increase in those receiving Medicaid, a health program for the poor.

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Comments

These overviews inevitably miss some part of the picture, since it's so huge and complex that it requires judicious editing to quickly arrive at the pre-determined conclusion.

In this case, by avoiding payroll and corporate taxes, yet including transfer payments unrelated to the income tax, Bartlett is shaping to his conclusion. The income tax is quite progressively slanted, even after itemized deductions that favor high income taxpayers (especially SALT and mortgage interest). But if you're going to consider transfer/welfare payments, then why exclude other taxes?

Of course certain excise taxes like cigarette and alcohol taxes tend to be regressive, and everyone is aware that payroll taxes are quite regressive (moreso when you consider lower payouts from Social Security and lower life expectancy), but the corporate tax incidence also to a great extent on workers or the unemployed (as companies pay less or hire less). These taxes undo some of the progressive effects of the other taxes, and of course state sales taxes are also regressive. And Social Security and Medicare as programs are themselves regressive, moving wealth from younger and poorer workers to older and richer retirees.

None of which considers off budget policies, such as the hidden tax of regulation and litigation (generally increasing the cost of goods and decreasing employment opportunities) or the hidden subsidy of QE to pad the bottom lines of bank, their employees, and their clients.

I get that the effect of all these things, taken together, increases uncertainty and massively increases complexity for writing an editorial. But it's arbitrary to only consider the progressive taxes and transfer payments, exclude the regressive taxes and transfer payments, then imply that a system is progressive because you found two progressive portions of it.

Posted by: nl7 | Dec 20, 2013 12:34:11 PM