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60% Of Households Get More Benefits Than They Pay In Taxes

Tyler Durden's picture




 

Authored by Mark Perry at AEI via Contra Corner blog,

The Congressional Budget Office (CBO) just released its annual report on “The Distribution of Household Income and Federal Taxes” analyzing data through 2011 on American household’s: a) average “market income” (a comprehensive measure that includes labor income, business income, and income from capital gains), b) average household transfer payments (payments and benefits from federal, state and local governments including Social Security, Medicare and unemployment insurance), and c) average federal taxes paid by households (including income, payroll, corporate, and excise taxes).

Some additional analysis and commentary will be provided here that reveal a yet-to-be discussed major implication of the CBO report – almost the entire burden: a) of all transfer payments made to American households and b) of all non-financed government spending, falls on just one group of Americans – the top one-fifth of US households by income.

That’s correct, the CBO study shows that the bottom three income quintiles representing 60% of US households are “net recipients” (they receive more in transfer payments than they pay in federal taxes), the second-highest income quintile pays just slightly more in federal taxes ($14,800) than it receives in government transfer payments ($14,100), while the top 20% of American “net payer” households finance 100% of the transfer payments to the bottom 60%, as well as almost 100% of the tax revenue collected to run the federal government. Here are the details of that analysis.

cbo1

The figures in  the graph above show the amount of federal taxes paid by the average household in each income quintile minus the average amount of government transfers received by those households in 2011. For each of the three lower income quintiles, their average government transfer payments exceeded their federal taxes paid by $8,600, $12,500, and $9,100 respectively, and therefore the entire bottom 60% of US households are “net recipients” of government transfer payments. Averaged across all three lower income quintiles, we could say that the lowest 60% of American households by income received an average transfer payment of about $10,000 in 2011. And because the government has no money of its own, where did those transfer payments come from to finance the “net recipient” households? Where else, but from the top two income quintiles, and realistically almost exclusively from Americans in the highest quintile.

Specifically, the average household in the fourth quintile paid slightly more in federal taxes ($14,800) than it received in transfer payments ($14,100) in 2011, making the average household in the second-highest income quintile a “net payer” household in the amount of $700 in 2011. Basically, households in the fourth income quintile paid enough in taxes to cover their transfer payments, and then made a minor contribution of $700 on average to help cover the transfer payments of the “net recipient” households in the bottom 60% and make a small contribution to the federal government’s other expenditures.

But the major finding of the CBO report is that the households in the top income quintile are the real “net payers” of the US economy. The average household in the top one-fifth of American households by income paid $57,500 in federal taxes in 2011, received $11,000 in government transfers, and therefore made a net positive contribution of $46,500. The second-highest income quintile basically just barely covers its transfer payments, so it’s really the top 20% of “net payer” households that are financing transfer payments to the entire bottom 60% AND financing the non-financed operations of the entire federal government.

Here’s another way to think about the burden of the “net payer” top income quintile. The average household in that income quintile made a contribution net of transfers in 2011 in the amount of $46,500. That would be equivalent to the average household in the top quintile writing four checks: 1) one check in the amount of $8,600 that would cover the average net transfer payments of a household in the bottom quintile, 2) another check for $12,500 to cover the average net transfers of a household in the second lowest quintile, 3) a third check in the amount of $9,100 to cover the average net transfer payments to a household in the middle income quintile, and 4) then finally writing a check for the balance of $16,300 that would go directly to the federal government, which for the households in the quintile as a whole would have covered almost 100% of the non-financed federal government spending in 2011.

So except for a small contribution net of transfers in the amount of $700 from the average household in the fourth quintile, the highest income quintile is basically financing the entire system of transfer payments to the bottom 60% AND the entire operation of the federal government. And yet don’t we hear all the time that “the rich” aren’t paying their fair share of taxes and that they need to shoulder a greater share of the federal tax burden?

Hey, they (the top 20%) are already shouldering almost the entire federal tax burden along with almost the entire system of entitlements and transfer payments! And that’s not “fair” enough already?

cbo2

The chart above shows another way that the CBO data reveal an extremely unequal distribution of government transfer payments and federal taxes by displaying the ratio of “dollars received in government transfers per dollar paid in federal tax revenues” by income quintile in 2011 (these data are from row 8 in the table above). The average household in the lowest quintile received $9,100 in government transfer payments in 2011 and paid only $500 in federal taxes, for a ratio of $18.20 in transfer payments for every $1.00 paid in federal taxes that year.

In contrast, the average household in the top income quintile received $11,000 in government transfers in 2011, but paid $57,500 in federal taxes, for a ratio of 19 cents in government transfer payments per dollar paid in federal taxes. This analysis is a further illustration that the bottom three quintiles are “net recipient” households that received more than $1 in government transfer payments for every $1 paid in federal taxes in 2011, while households in the fourth quintile were minor “net payers” in 2011 and received slightly less than a dollar in transfer payments on average ($0.95) for every $1 paid in federal taxes. “Net payers” in the top quintile received only $0.19 in government transfer payments per $1 paid in federal taxes in 2011.

cbo3

This final chart shows average tax rates by quintile in 2011, both before and after government transfer payments. The blue bars in the chart show the average tax rates by income quintile from the CBO report (Table 4) and are also displayed in the top table above in row 5, calculated by dividing federal taxes paid (row 4) into “Before Tax Income” (row 3, Market Income + Government Transfers).

Adjusting for government transfers received, the brown bars in the chart are calculated by dividing “federal taxes paid minus government transfers received” (row 6 in the table) into Before-Tax Income (row 3), and show average tax rates by income quintile after government transfers. For example, the average “net recipient” household in the lowest income quintile received a “negative tax” payment of $8,600 in 2011, had an average before-tax income of $24,600, for a negative tax rate of 35%.

Reflecting their “net recipient” status, all three lower income quintiles had negative average tax rates in 2011, and only the “net payer” households in the top two income quintiles had positive after-transfer tax rates of 0.7% for the second-highest quintile and 18.9% for the top quintile. This further demonstrates that after transfer payments, households in the bottom 60% are “net recipients” with negative income tax rates, while only the top two “net payer” income quintiles had positive tax rates after transfers in 2011…….

 

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Tue, 11/18/2014 - 17:44 | 5462578 Sun and Moon
Sun and Moon's picture

Even people who think they are getting more from the government than they pay in might be being fooled. Suppose I receive $5K in meds and doctor bills for treatment that would only cost $1K in a system where the government wasn't subsidizing useless treatments. It wasn't really such a bargain.

The current system encourages doctors to prescribe useless and overpriced tests, meds, even surguries that benefit no one except the doctors and hospitals.

Tue, 11/18/2014 - 17:51 | 5462609 p00k1e
p00k1e's picture

We saw what you described in the Dallas Ebolian.  He walked in was promptly prescribed antibiotics then told to go.    

Tue, 11/18/2014 - 17:42 | 5462579 T-NUTZ
T-NUTZ's picture

Is he counting the transfer payments to stock holders?

Tue, 11/18/2014 - 17:53 | 5462613 Seize Mars
Seize Mars's picture

You're welcome, freeloaders

Tue, 11/18/2014 - 17:58 | 5462630 Sub MOA
Sub MOA's picture

the way its headed we're all gonna be freeloaders in the near future !  maybe I should get an EBT card now and beat the rush ;) 

Tue, 11/18/2014 - 17:54 | 5462623 Jonathan Equine...
Jonathan Equine Phallus's picture

We need to triage the thefts.

 

Look - we can get to the minority welfare moms with the 5 kids and 4 baby daddies, but shouldn't we all agree that they are stealing pennies while the Fed, Banks, Buffets, and Goldman Sacks are stealing trillions?

If you aren't concerned with fraud and waste of social safety nets by the time you're 30 you've got no brains...

 

But if you haven't subsequently figured out that the banks and the MIC are orders of magnitude larger crooks - you've merely got the brains of an easy led sheep.

 

Just because you don't like hippies doesn't mean they don't have a point when they talk about what the money spent on Iraq/AfPak wars could have done.  We could have all put that money in the bank, or yes - spent it on educating our idiot urban youth, invested in bona fide alternative energies to lessen dependence on the middle east...

 

We could have invented a life-like Asian fuck robot, too.

 

 

 

Tue, 11/18/2014 - 17:55 | 5462633 p00k1e
p00k1e's picture

It really is cognitive dissonance.

Palin propped an unwed teenage mom on the world stage.

Chelsea Clinton was married before she got knocked-up.

Tue, 11/18/2014 - 20:11 | 5463053 Dead Man Walking
Dead Man Walking's picture

I vote for the Robot !

God I love this place.

Tue, 11/18/2014 - 17:55 | 5462624 Limbs Akimbo
Limbs Akimbo's picture

 

Oh DUH!

 

It is what happens after you destroy the middle class.

 

BTW....in the early 50s the very rich paid a very high income tax proportional to the middle and lower class. Seemed to work then.

Tue, 11/18/2014 - 17:58 | 5462641 p00k1e
p00k1e's picture

Reagan Hater! 

Tue, 11/18/2014 - 17:55 | 5462625 waterhorse
waterhorse's picture

Most studies from AEI amount to a POS.

Tue, 11/18/2014 - 18:02 | 5462655 foodstampbarry
foodstampbarry's picture

Totally sustainable.

Tue, 11/18/2014 - 18:08 | 5462674 olenumbersix
olenumbersix's picture

All these give away's are nothing more than pacification

Tue, 11/18/2014 - 18:30 | 5462756 chomu
chomu's picture

...And the bottom 60% all went to Florida State.

Tue, 11/18/2014 - 18:33 | 5462770 Jonathan Equine...
Jonathan Equine Phallus's picture

tax financial transactions.  tax cap gains at median incom tax rate. Tax the Fed.  Close tax loopholes for companies that offshore jobs while reaping huge profits here.

One thing that should piss everyone off is American pharma companies bitching about medicare rates, or whatever, even as they sell their shit for far less in other countries which have caps.

Make SS taxes progressive {whether or not we can ever get the sheep to realize its a Ponzi, in essence, and phase it out}...  for people with assets over 10 billion... how about a super billionaire tax of 5%

You, boys and girls, are subsidizing the lower drug prices in Canada. 

 

But ure - keep bitching about "socialism" as you keep getting raped up the ass by the 2 party, fascist regime.  Pharma is fucking you, Big Oil is fucking you, and Microsoft keeps coming in your hair.

 

But keep bitching about Obama being a Marxist and secret Muslim you handful of trollish cunts.  You're part of the fucking problem and you refuse to open your eyes and understand it.

 

Everything's fucked up and I don't know which lies to believe in anymore.

Wed, 11/19/2014 - 00:46 | 5464060 yrbmegr
yrbmegr's picture

Yes, we need to level taxation between capital gains and wages.

Tue, 11/18/2014 - 18:38 | 5462783 barroter
barroter's picture

Leave the po' rich alone! How can they enjoy their money if you bitch all of the time. Just because the rich own 9 slices of a 10 slice pizza and the rest of you 328 million fight over the last piece ain't no cause for complaining!

Tue, 11/18/2014 - 19:02 | 5462861 yogibear
yogibear's picture

Bankers and Wall Street steal the wealth, just a fee they pay as they impoverish the rest. 

Tue, 11/18/2014 - 19:05 | 5462872 LooseLee
LooseLee's picture

Where is the $800 B + that bailed out the bankers, GM, AIG, etc. fit into this equation?

Tue, 11/18/2014 - 19:08 | 5462879 insanelysane
insanelysane's picture

All of these taxes still only pay for 2/3 to 3/4 of .gov spending.  They borrow the rest AND WE STILL LIVE IN A SHITHOLE!  All of these taxes and all of the borrowing and .gov still gives us a crumbling infrastructure, record unemployment, record homelessness, record crime, etc.  What does .gov say?  We need higher taxes and more borrowing to fix things.  I'm not sure of the makeup of the .gov management and .gov workers but it only consists of 2 types; criminals and assclowns and maybe a 3rd type that are assclown criminals.

Tue, 11/18/2014 - 19:11 | 5462888 directaction
directaction's picture

What a bunch of garbage.

The top few percent receive far more in welfare than the scraps tossed aside for the bottom 60%.

It's not even close. This tiny group of corporate and bank elites have gained in an historically unprecedented fashion in the form of banker bailouts, war profiteering, and in general by receiving 99.999% of the trillions of dollars printed over the past six years.

So don't even try to pick on the bottom 60%, otherwise known as the poor. None of us believe it.  

Tue, 11/18/2014 - 23:20 | 5463713 yrbmegr
yrbmegr's picture

Mark Perry at AEI trying to convince you that if you vote Republican, you too can be rich.  They've been selling that shit for a hundred years.  Before the first Bush presidency, it used to work.

Tue, 11/18/2014 - 19:28 | 5462955 swmnguy
swmnguy's picture

What this really shows is how much more income the top 20% has than anyone else.  Anyone below that 80% line pays more in Payroll tax than Federal Income Tax, because they don't earn enough money to pay more in income tax.  I know; I used to be below that line.  Sure, I didn't pay much Income Tax, and it sucked.  Because I didn't have any money.  Now I pay a lot in taxes, every quarter, and it's great because I have a lot of money left over to buy shit and live far better than I ever have.

Most Social Security and Medicare recipients aren't in that top 20% either, so retirees who aren't earning income, aren't paying Income Tax, and derive much if not all their income from the Social Security and Medicare etc. they paid into their whole working careers.

Bullshit article, pushing a point of view that ought to be able to stand on its own without the misdirection and conflation of apples and oranges.

Tue, 11/18/2014 - 23:15 | 5463684 yrbmegr
yrbmegr's picture

Just so.

Tue, 11/18/2014 - 19:36 | 5462965 q99x2
q99x2's picture

I guess I'm in that 60%.I look at it as though the Govenment is my patron like rich folk were in the old days.

Tue, 11/18/2014 - 20:04 | 5463034 just_askin
just_askin's picture

Suggested therapy for put-upon top quintilers: a new reality show where you swap lives with the bottom quintile. In the final episode the bottom quintile gets to decide whether everybody stays put.

Tue, 11/18/2014 - 20:10 | 5463041 Next to Arch Stanton
Next to Arch Stanton's picture

The fact that Fed printing is almost entirely responsible for the massive divide in income in this country will be completely lost in any discussion or story which this report generates.  The report is simply one more data point proving what a controlled, socialist society we have - some people have figured out how to make money in this system, while others have figured out how to not work in this system.  Many others haven't figured out either one and are just fucked (must be the 4th quintile).

And for that matter, I'm a little surprised a report like this even sees the light of day, given it may actually come close to presenting the truth of the matter.  I'm sure someone was pursuing an agenda when having this report done, just not sure exactly which specific group.  Someone commented earlier, can't really believe anything produced by the government.

Tue, 11/18/2014 - 22:42 | 5463513 Lostinfortwalton
Lostinfortwalton's picture

You can't tax the middle class if there is no middle class.

Tue, 11/18/2014 - 20:20 | 5463086 Dead Man Walking
Dead Man Walking's picture

How about retired teachers ? We know a 75 year old teacher here in NJ that never made more than 40k during her career and now collects over 65k per year due to pension increases. she's been collecting for almost 25 yrs.

Tue, 11/18/2014 - 20:32 | 5463117 directaction
directaction's picture

A three percent COLA for 23.4 years would have doubled her original full tier-one retirement check. 

If she started teaaching in her early 20s she may have taught for around 30 years. This is not one bit shocking. It's her due. 

 

Tue, 11/18/2014 - 22:11 | 5463388 Leraconteur
Leraconteur's picture

30 x 40 = 1.2mn

23.4 x (65+32.5)/2 = 1140.75 mn

She is receiving almost what she earned in gross pay.

Tue, 11/18/2014 - 23:50 | 5463875 ersatz007
ersatz007's picture

You should become a teacher.

Wed, 11/19/2014 - 00:46 | 5464056 FredFlintstone
FredFlintstone's picture

No, liquidate all public pensions and put the fuckers on SS. 

Wed, 11/19/2014 - 00:45 | 5464052 FredFlintstone
FredFlintstone's picture

Work 30 years with summers off and then collect for the next 45 years. Great fucking deal.

Tue, 11/18/2014 - 20:27 | 5463107 red_pill
red_pill's picture

hmmm, my wife and I make about 65000 together. Not sure what all fits in the descripton of transfer payments, but we have no ebt, welfare of any kind. We pay in over 8500 a year in Federal income tax, SS, medicare...what's with this article?

Tue, 11/18/2014 - 20:55 | 5463181 Creepy A. Cracker
Creepy A. Cracker's picture

Time for a flat tax.  Everyone must be required to pay their "fair share."  Too many pay nothing for the loot that they get from others.

Tue, 11/18/2014 - 23:22 | 5463729 yrbmegr
yrbmegr's picture

You do realize that federal income tax is not the only tax, don't you?

Wed, 11/19/2014 - 00:49 | 5464065 FredFlintstone
FredFlintstone's picture

Its the biggie.

Tue, 11/18/2014 - 21:17 | 5463234 mastersnark
mastersnark's picture

I keep running out of reasons not to go Galt and join the Free Shit Army. Everyday I feel more like a "dumbass sucker" than a "proud producer."

Tue, 11/18/2014 - 21:19 | 5463236 pippi68
pippi68's picture

Lucky Ducky! The little duck who's rich in luck!

http://gocomics.typepad.com/tomthedancingbugblog/2010/07/lucky-ducky-day...

Tue, 11/18/2014 - 21:20 | 5463241 mcsean2163
mcsean2163's picture

Slaves in ancient Rome paid no tax....

Tue, 11/18/2014 - 23:22 | 5463737 yrbmegr
yrbmegr's picture

They had it good.  Today's slaves (really indentured servants) merely pay no federal income tax.

Tue, 11/18/2014 - 21:51 | 5463333 Spungo
Spungo's picture

Real stat: the stop 1% own more than the bottom 90%. It makes sense that the bottom 90% would be net tax recipients while the top 1% are net payers. That just seems fair.

Tue, 11/18/2014 - 22:06 | 5463378 Leraconteur
Leraconteur's picture

I get no benefits, live in another country.

If I collect SS, then I would be a net drain that year, but on a lifetime still net positive.

I am a man, worked for decades, paid lots of taxes.  

Tue, 11/18/2014 - 22:36 | 5463477 Lostinfortwalton
Lostinfortwalton's picture

What about state taxes, city taxes, local sales taxes, property taxes, gasoline taxes, and so on?

Tue, 11/18/2014 - 22:47 | 5463540 GeoffreyT
GeoffreyT's picture

That number is obviously also skewed way downwards, in that it does not count the fact that anybody who works for .gov in any capacity, receives more in taxes than they pay (because thet're paid out of the tax take).

Politicians, pigs, judges, IRS droogs, the security-theatre alphagetti... these are NOT 'net tax contributors', and they are paid a fuckload more than the poor schlub whose unemployment 'insurance' just ran out.

 

Likewise, anybody who works for a 'defence contractor' Todeskramer - Raytheon, General Dynamics etc - every penny of their income, is sourced from taxation.

 

The number of truly privater sector tax-payers is really fucking small... especially if you get 'hardcore' about it and count any IP- or .gov-barrier-to-entry monopoly profit as a tax-transfer-in-kind: then lawyers, the major media and publishing houses, Pharma, big Ag, and most technology companies are not net tax payers.

Tue, 11/18/2014 - 22:53 | 5463551 The_Prisoner
The_Prisoner's picture

That must be why it feels like I'm the only person still paying tax in Australia.

Tue, 11/18/2014 - 22:48 | 5463543 SocialismIsCancer
SocialismIsCancer's picture

Messages for the enlightened:

1. Don't have incomes from sources that are confiscated at the higher rates. Wage income = slavery, ultimate NO-NO!

2. Don't waste life trying to earn higher total income that is just going to be confiscated - kick back, enjoy what you have, let the fools pull the pharoh's pyramid blocks of stone.

going fishing now ....

 

Tue, 11/18/2014 - 23:11 | 5463659 yrbmegr
yrbmegr's picture

Why do we always ignore state and local taxes in these commentaries?  Why is "taxes" always equated exclusively with federal income taxes?  Just on a whim, I looked at a web site called taxfoundation.org, which helpfully informs us, "

  • The total tax burden faced by wage earners in the United States is 31.3 percent of their pre-tax earnings, paying $16,658 in taxes in 2013, with $8,196 in individual income taxes and $8,462 in payroll taxes."

This is, of course, an obviously false statement, because obviously, individual income taxes and payroll taxes are not the only taxes paid by wage earners in the United States, as every wage earner will tell you.  Can we please get a little perspective in this discussion?

Wed, 11/19/2014 - 00:52 | 5464082 FredFlintstone
FredFlintstone's picture

I think Federal revenues are larger than state and local by a factor of 3 to 1. Going from memory. Hard to believe that we are so up side down. It should be the other way around.

Wed, 11/19/2014 - 04:18 | 5464368 Victor999
Victor999's picture

How would we, then, finance our vast military and foreign war efforts?

Tue, 11/18/2014 - 23:21 | 5463728 MEAN BUSINESS
MEAN BUSINESS's picture

H.R 25 'Fair Tax' would virtually eliminate the IRS and April 15 but yet there is almost never any discussion of it in these threads. I realize it's on par with "endthefed!" but I would think Zero Hedge would be a place to see the Fair Tax discussed quite thoroughly. Weird.

Wed, 11/19/2014 - 00:50 | 5464068 yrbmegr
yrbmegr's picture

Because intelligent people realize that federal income tax is not the only tax.

Thu, 11/20/2014 - 00:22 | 5468429 MEAN BUSINESS
MEAN BUSINESS's picture

Thanks for clearing that up. BTW awesome screen name and avatar. 

Wed, 11/19/2014 - 01:47 | 5464202 MeBizarro
MeBizarro's picture

These kind of breakouts are nearly useless because they are only one form of tax (poor are much more effected by other taxes including sales tax and payroll taxes) and provides no insight into the type of household.  Of course, retirees households are going to pay little/no federal taxes and receive large amount of federal transfers.  

Wed, 11/19/2014 - 03:43 | 5464336 ilw4e
ilw4e's picture

Are you stupid or what? You think the poor don't want to pay tax?  They don't get any income to pay! Thanks to the inequality and the monetary system robbing them.

It's the problem of wealth distribution and you are sounding like the tea party clowns saying the tax are too high for the rich or other bullshits like that.

Wed, 11/19/2014 - 04:56 | 5464406 oooBooo
oooBooo's picture

Headline is wrong.

We don't know the percentage that get more than they pay from this data.

In any of the groupings there are people who pay vastly more than what they get and people get vastly more than they pay. We are only seeing the groupings as wholes and if that whole comes out net payer or net taker.We know nothing of individual households and how many in each group are subsidizers vs. takers.

 

 

 

Wed, 11/19/2014 - 05:39 | 5464448 Expat
Expat's picture

Gosh!  I can see it in the news every day.  The Rich are getting poorer.  Never in American history has the top 1% lost so much of their income or had such a low percentage of national wealth.

No, wait.  It's the other way around.  My bad. 

You know what?  Kiss my ass.  If 60% of households receive more from the government than they contribute, it's because the top 1% have stolen everything they have.

Sanctimonious bullshit!

Wed, 11/19/2014 - 09:33 | 5464794 gcjohns1971
gcjohns1971's picture

It is not the top 1% who pay.  The top 1% pay nothing, and are huge recipients from the federal reserve.

The 19% below them pay for everything.  These are the people who are struggling hardest to retain a middle-class lifestyle... with the motivation that if they can only out-compete the other 18% in their quintile they may be able to reach the 'Promised Land' where their income is high, and their assets produce more of their real wealth than their nominal income does.

Wed, 11/19/2014 - 09:42 | 5464823 Chump
Chump's picture

The method takes different forms, but everyone across all quintiles is clamoring to benefit at the expense of others.

Wed, 11/19/2014 - 08:27 | 5464635 windywoo
windywoo's picture

The uber-rich pay no taxes.

Wed, 11/19/2014 - 20:01 | 5467646 Martian Moon
Martian Moon's picture

Both the article and the comments are missing the elephant in the room

Almost all collected taxes go to pay the interest on the debt

A fraudulent debt accumulated when the state turned over the creation of new currency to private hands

All expendetures on .gov programs come from newly borrowed money

So why argue endlessly about what is fair?  It is all fraudulent.

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