Income redistribution

Date posted: March 31, 2014

Host Mary Walden says that there are many federal and state programs that use tax revenues to financially and economically help families with limited resources. When we look at families of different income levels, what kinds of differences do we see in terms of taxes paid compared to government benefits received, she asks her husband, N.C. State economics Mike Walden?

Mike Walden: “Well Mary, we have a brand new study that actually does this.  What this study did is break families up into different income levels and look at how much taxes those families pay. And this would be state, federal and local taxes. And then how much money do these families get back on average in terms of various kinds of federal, state or local programs. And the differences are very dramatic.

“If you are a family today earning under $17,000, you on average get back about $5 in government benefits for every $1 that you pay in taxes. If you earn $37,000, it’s much more even: You get back a $1.50 for every $1 paid in taxes. But if you’re a family earning more than $100,000, you only get back about $0.25 for every $1 paid in taxes. And clearly this is because a lot of the programs we’re talking about are geared to do just that: Help folks at the lower end or middle end middle segment of the income distribution. And obviously folks at the high end will have to pay for that.

“Now I will say that these comparisons ignore one key point, and that is that there are benefits that all of us get just in general from government being out there. Every family gets a benefit from having police and fire protection and having various kinds of legal protections as well as the international protection we get from having the military. Now these calculations don’t take those kinds of protections and benefits into account, and they would somewhat change the numbers.”

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