The Redistributive State

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from NCPA,

The government functions as a redistributive mechanism: some households receive more than they contribute in taxes and some pay more than they receive.

Direct benefit programs involve a transparent transfer of economic resources and it is easy to identify the beneficiaries; the largest of these programs are Social Security and Medicare, other programs include Unemployment Insurance and Workmen’s Compensation.

Transfers also encompass means-tested benefits and are available only to low-income households, among these are Medicaid, the Earned Income Tax Credit, food stamps and Section 8 housing. Some of these services provide cash while others pay for services.

Other services include public education, population-based services, pure public goods and interests and obligations.

The study reveals that:

– Measured on a per capita basis, the bottom quintile actually received 2.4 times more government benefits and services than the top quintile.
– The distribution of total taxes was highly unequal. The top quintile paid 16 times more in taxes than the bottom quintile.
– The $1.6 trillion in taxes paid by the top quintile represented approximately 30% of its pre-tax income.
– There was a transfer of roughly $1 trillion in economic resources from the top two quintiles to the bottom three.

The lowest three income quintiles of households received benefits that exceeded taxes paid, while the two highest ones paid taxes that exceeded benefits received.

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