The debate over taxing high-income families to fund the expansion of health care coverage in America has renewed the broader question of government’s role in redistributing income through tax and spending policies. What is missing from this debate is some hard numbers on how much current tax and spending policies redistribute income from some Americans to others and how much the policies advocated by the Obama Administration will change the overall amount of redistribution.
The Tax Foundation’s “Fiscal Incidence” project has filled this void by first calculating how much current tax and spending policies are redistributing, then estimating how much President Obama’s policies—from taxes to health care to climate change—will alter that redistribution. Simply put, the Fiscal Incidence Model compares the total amount of federal taxes families pay (such as income taxes, excise taxes, payroll taxes, etc.) to the total amount of government spending they receive (such as entitlement benefits, defense spending, public works, etc.).
How the Money Comes and Goes
We divide American families into ten equal groups by income level, and at the top end of the spectrum, we are able to break that 10 percent down into smaller groups. In general, as anyone would expect, families who earn more pay more in taxes than they receive in benefits while families who earn less receive more in federal spending than they pay in federal taxes. These individual results are then summed up into a national picture of how much tax and spending policies redistribute income from some American families to others.
READ THE REST OF THIS ARTICLE HERE: The Tax Foundation – Basic Facts on Redistribution and the Impact of Obama’s Policies.