This showed up on Harvard economics professor Greg Mankiw’s blog. He took data from the non-partisan Congressional Budget Office that showed incomes, Federal taxes, and state and Federal transfer payments for different income segments of the population. Transfer payments are cash outlays from the government that benefit an individual. Social security checks are transfer payments. So are Earned Income Credits, food stamps, and Medicaid payments. The most recent data provided was for 2009.
Since transfer payments are like a negative tax, what Mankiw did was combined tax payments and transfer payments, divided by market incomes from earnings and savings. These are the results he got:
Bottom quintile: -301 percent
Second quintile: -42%
Third quintile: -5%
Fourth quintile: 10%
Top quintile: 22%
Top 1%: 28%
This means that for households in the lowest 20% of income, they receive $3 in federal money for every dollar that they earn. For people in the top 1%, for every $1 they make, 28 cents ends up back in the hands of the Feds.
Two points on this spring to mind.
First, notice that the middle 20%, the third quintile, has a negative percentage. That means the middle is drawing more from the government than they are paying in. Not by much, but the majority of households are benefiting from government largesse. We have reached a tipping point.
Secondly, this speaks to the level of progressivity in the tax system. Much of the policy debate coming out of the Obama administration concerns raising taxes on the top earners, making them pay their “fair share.” When 60% are taking out more than they put in, I don’t see how you can make a claim that the wealthy have a duty to put in a higher percentage of their income.
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Well, you know I had to get into this one... Check out Business Insider article on wealth inequality in America. Just to note a few points: 1. In 1962 the 1% had 125 times income compared to the medium income. Now it is nearly 200 times. This has all happened since the Reagan and Bush tax cuts. 2. America spreads its wealth FAR LESS than any other developed country. 3. This wealth gap has not been this bad since the 20s. 4.average earnings have not increased in 50 years. 5. U.S. household savings rate has been sinking since the early 80s. And 6. Americans born into poverty today have a very very poor chance of getting into upper middle class. 7. The amount of % of taxes paid by the 1% keeps going lower and lower. I am just saying...
Well said Chris. Johnnie, your basic premise is that everyone should have essentially the same income (the poor should have more and the wealthy should have less), which fundamentally, is the premise behind socialist policies. Socialism, as is so evident in Europe today, is a failed idea. These following five points are not original with me (the originator is anonymous) but they so succinctly state the state the obvious flaws in this failed thinking that they are worthy of a repost.
1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody anything that the government does not first take from somebody else.
4. You cannot multiply wealth by dividing it.
5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.
Few people realize that the pilgrims flirted with these policies for a period of time. (Read William Bradford's "Plymouth Plantation.") The result, was laziness on the parts of some, and resentment and frustration on the parts of others. In the end, the policies were abandoned for private ownership and capitalism. We realy could say, "Been there, done that" if we paid any attention to history.
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