The Congressional Budget Office is just out with a new report that shows exactly how much income redistribution the government is accomplishing. Recently, liberal politicians and the media have been focused on income inequality, but they almost always use data on pre-tax and pre-transfer income before the government’s income redistribution programs have done their work. Looking at the data after income taxes, after refundable tax credits, and after government transfer programs tells quite a different story.
It is well known that only about half of Americans actually pay any income taxes. This fact became quite famous during the 2012 presidential campaign when Mitt Romney was reported to have commented about how 47 percent of Americans were bound to vote for Democrats (or whatever party promised them free stuff) since they did not pay any income taxes. This new data make clear how Governor Romney was wrong because he focused just on income taxes.
In fact, it is much worse than he thought. …
When taxes paid and refundable tax credits are taken into account, we see that government is doing even more to redistribute income. Once CBO factors in both the money paid in and money received, we find that the average family in the top income quintile pays a net $52,500 to the federal government. The second quintile pays an average net $8,800 per family.
Then things change. The third quintile receives a net gain of $2,600 per family on average. The fourth quintile does even better, receiving an average net gain of $12,700 per family. Finally, the bottom quintile of income earners ends up $22,700 better off per family after all the government taxes and transfers are taken into account.
The main thing to note from the above is that somewhere between 50 and 60 percent of families appear to be receiving more in transfers and tax refunds than they paid in taxes. But the true picture is even worse than that. Remember that the government does a few things other than transfer money. …
This suggests that in actuality around 70 percent of American families are receiving more from the government than they are paying in. That estimate is based on the fact that the second highest earning quintile is now roughly breaking even (paying a net $800 per family). Since this quintile holds those from the 60th to the 80th percentile, a reasonable guess is that half are receiving net benefits and half are net payers to the government.
Due to the progressive nature of our income tax system, the actual number is likely somewhat past the midpoint, so perhaps 72 or 73 percent of Americans are actually receiving more from the government than they pay in with only a bit more than one quarter of the country actually paying more in than they are getting back.
If democracy is limited in its lifespan by the people’s ability to restrain themselves from deciding that the national government is a mechanism for providing free benefits, then the evidence of the last 80 years or so, and especially the past dozen, is that we have lost all restraint. As I documented in my e-book, Ending the Era of the Free Lunch, and as amply proved by the non-partisan Congressional Budget Office’s report, we now live in a society where most of us receive government benefits well in excess of what we pay in taxes. …
Mitt Romney aimed low in his famous remark. We are now well past a majority in terms of how many people are net receivers from the government. The coalition of voters who have an economic interest in voting for more goodies from the government is over 70 percent and growing.
Steve Prestegard.com: The Presteblog 
Leave a comment