Nums: Who pays taxes? Who benefits?

Since it’s tax week, I thought I’d flashback to a drill down I did on the tax system —  who pays in, where does it go and who benefits …

In a prior post, we drilled down on taxes … or, as my Dem friends would say government “revenues”.

We posted that in 2012 Americans paid a tad over $5 trillion in taxes to the Feds, States and Local Governments.

Drilling down, the $5 trillion is split roughly 50%-30%-20% to the Feds, States and Locals, respectively. Note that the Federal portion is just under $2.5 trillion.


* * * * *
If these are “revenues” there must be matching services provided, right?

I found a study by the non-partisan Tax Foundation that analyzes taxes paid and benefits received.

The study is old – using 2004 data – but, in my opinion is a good starting point to calibrate the answer.

First, the easy part …

The Federal tax revenues in 2004 were a bit over $2 trillion … compared to our $2.5 trillion projection in 2012.

Here’s how the 2004 tax revenues were spent … i.e., the benefits received by citizens.

Note that the Federal spending is just under $20,000 per household.


* * * * *

The Tax Foundation analysts also sorted taxes paid by household income pentile against benefits received by the pentiles ….. and things got interesting.

The bottom pentile – households in the bottom 20% of income – pay about 2.5% of Federal taxes (including payroll taxes !) … and receive 1/3 of government benefits.

The top pentile pays over half of the Federal taxes and draws about 15% of government benefits.

The middle pentile comes close to breaking even – paying 14.1% of Federal taxes and getting 16% of government benefits.


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Here’s another way to cut the data …

On average, households in the bottom pentile get $23,178 more in benefits than they pay in taxes; average households in top 20% run a deficit of almost $40,000 – that is, they pay about $40k in taxes than they receive in benefits; the breakeven point is somewhere around $50,000 in household income – that’s where taxes paid equal benefits received.


* * * * *
When state & local taxes and benefits are factored in, the surpluses and deficits grow even larger.

The bottom 20% gets over $31,000 per household in net government benefits; the top 20% pays almost $50,000 per household more than it gets in government benefits.

The breakeven point is still somewhere around $50,000 in household income – that’s where taxes paid equal benefits received.


* * * * *

I’ll be hunting for more recent data.

Until I find it, chew on this!

Note: The Tax Foundation says it doesn’t have funding to update its study.

Nuts !



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