Counting Both Spending and Taxes, New Study Finds Redistribution from Top-Earning 5 Percent Will Rise from $619 Billion to $698 Billion in 2012

Washington, DC – New analysis of President Obama’s Budget finds that he is targeting the nation’s highest earners for greater income redistributions. By 2012, the federal government is scheduled to be redistributing an extra $79 billion from the top-earning 5 percent of American families, and $71 billion of that will be paid by the top-earning 1 percent of families.

“That’s an additional $64,000 per family redistributed from the top-earning 1 percent,” said the Tax Foundation’s president Scott Hodge, “on top of the already substantial $368,000 that would have been redistributed from each family even without President Obama’s new policies.”

“Part of that change is higher taxes, and part is lower spending on items that benefit high-income people,” said the study’s lead author, Tax Foundation Senior Economist Gerald Prante.

The new study is No. 168 in the Tax Foundation Special Report series, titled, “How Much Does President Obama’s Budget Redistribute Income?” by Prante and his co-author, chief economist Patrick Fleenor, and is available online at www.taxfoundation.org/publications/show/24783.html.

It is the first in a projected series of reports based on the Tax Foundation’s “fiscal incidence” model, a computer simulation of the U.S. fiscal system with an innovation: it measures the redistributive effects of both spending and tax policies. Thanks to numerous studies of tax laws by the Congressional Budget Office, the Joint Tax Committee and others, policymakers are well aware of how much money the tax system by itself redistributes from high- to middle- and low-income Americans. Now the Tax Foundation is measuring the redistributive effects of spending as well.

Income redistribution has been on the front burner at least since President Obama told ‘Joe the Plumber’ on the stump, “When you spread the wealth around, it’s good for everybody.”

But if we don’t measure the impact of federal spending as well as taxes, according to Prante and Fleenor, we can’t know how much income we are already redistributing.

“Many tax cuts are no different from government spending programs,” explains Prante, “but they’re treated very differently by our political process. For example, if a congressman proposes to increase welfare benefits, he may be criticized as a profligate spender, but if he proposes an increase in a refundable tax credit, he may be praised as a tax-cutter. Really, both proposals redistribute income in similar ways, one through the tax code and one through federal appropriations. This project is an effort to equalize the treatment of spending and taxes.”

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.