Who Is Taxed and Who Gets the Dough?

James Joyner and I are in broad agreement on foreign policy issues but differ a little on domestic policy and I think that difference might be explained by differing views of what is actually going on in our society, different ideas of how things actually work.

In a post yesterday James asserted:

Otherwise, our public policy would seem to have been aimed over recent decades — going back to the New Deal — toward redistribution of income from the haves to the have nots.

If only that were the case! I don’t object to government programs that help people who are genuinely in need. Although a valid complaint about such programs is “moral hazard”, that such programs promote dependency and poor choices, my response would be to formulate better programs. When some poor schmo is bleeding on the roadway after being run over by a car is a poor time to be worrying about moral hazard.

However, that isn’t what is actually happening and a clearer if more complex picture emerges by considering just two graphs.


The first graph illustrates taxes paid in dollars per household by income quintile. The second graph illustrates government spending in dollars per household by income quintile. Both of these graphs are from the Tax Foundation and the paper from which I captured them is just chockful of interesting information.

On the taxation side I would interpret these results as showing that our federal tax system is moderately progressive, our state and local tax systems are mildly progressive, and our net total tax system is moderately progressive.

On the spending side I would interpret these results as showing that our spending is actually pretty egalitarian. The top and bottom quintiles receive slightly more than the rest but overall, as I said, pretty egalitarian.

The net result is one in which money is redistributed from the top two quintiles to the lower three quintiles. Of course our system is redistributive. We tax “the rich” because they have something to tax. Since public goods like national defense and public health systems without which we could not maintain a modern society can’t be paid for on the basis of a head tax and anything other than a head tax is by definition redistributive, a redistributive system we will have.

By no stretch of the imagination is a family in the third income quintile a “have not”.

In my ideal system spending would be considerably less egalitarian with considerably less attention being devoted to the top four quintiles than is now. Consistent with that view, I support things like means-testing Social Security and Medicare.

There are all sorts of explanations for why we have the system we do including that it’s the price of a democratic system, it’s a method of popularizing governmental intervention, and any number of others. To some extent I think it’s like Topsy—it just grew.

But our system is not one in which we redistribute from the haves to the have nots. It’s one in which we redistribute from the top quintiles to the bottom three, largely regardless of need.

3 comments… add one
  • Drew Link

    I simply cannot fully express how much I agree with this. A theme has been a pet peeve of mine for awhile.

    I’d quibble with the notion of “modest” progressivity, but the bottom line is that those with money are going to pay the freight. My departure with the left is the notion of paying the freight without bound. (And that’s you, Mr. Reynolds.)

    But as to my pet peeve, DS is one of the few to point out that we are basically recycling upper income money to middle and lower income people. BUT IT’S NOT DIRECTED AT THE POOR AS IT SHOULD BE!!

    As a political matter, we all understand that invoking “the poor” is SOP in advocating another govt program.

    But only Milton Friedman got it right, we should have a negative income tax and make direct cash subsidy payments to the poor, and stop this wasteful filtering through a mass govt maze which really creates middle class jobs (and reliable votes) and includes people of incomes who should not be receiving checks.

    Its shamefull, really.

  • Andy Link


    Actually, one aspect of all the tax cuts over the years is that upwards of 40% of filers effectively pay no tax and the poorest actually do have a negative income tax. All this is excluding, of course, the payroll tax.

  • Drew Link

    Andy –
    If you factor in all taxes, you end up with a progressive tax system. People can legitimately debate as to the “proper” amount of progressivity.

    My point is actually different. A negative income tax is administratively simple. It could be calculated and effected under the current IRS system. You make “X” you pay “Y.” You make not so much, we cut you a check for “Z.” No need for the massive government organizations we have built to administer a myriad of programs, where massive amounts of monies don’t go to the people we claim we want to help, but rather to clerks.

    I happen to be a cynic. I believe this is by design; those clerks become reliable Democratic votes. Others may differ.

    I have no problem with a United States that takes care of the real in need. By any measure we can afford it. I just believe the methodology we use is an inefficient travesty, not sufficiently directed at those in need, and raped (syphoned off) of resources by those out for pure political gain. I call those people politicians, or [rhymes with “rock” and suckers.] And the only effective solution I know of is to limit their take on the national income, always and everywhere.

    I guess I’m an idealist.

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