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How are taxes distributed



In previous reports, CBO analyzed how household income (which included some federal benefit payments, or transfers) and federal taxes were distributed among different segments of the U.S. population. This report goes a step farther by analyzing the distribution of most federal spending—including spending on transfers and a host of other government activities—and almost all federal revenues among U.S. households in 2006. In that calendar year (the most recent one for which relevant data were publicly available when CBO began the analysis), the federal government spent $2.7 trillion on a wide range of goods and services and collected $2.4 trillion in taxes and other revenues to pay for them. About 88 percent of that spending and 98 percent of those revenues are allocated to households in this report.

With the economy still recovering from the 2007–2009 recession, federal spending was much higher in calendar year 2012 ($3.6 trillion) than it was in 2006. Some of the additional spending went to households affected by the recession, so the distribution of spending in 2012 probably differed from the distribution presented here. Although total revenues were similar in 2006 and 2012, the distribution of taxes also probably differed because of changes in tax laws and in the distribution of income.

This analysis examines spending and taxes for three types of households, which are defined by the age of their members: elderly households, nonelderly households with children present, and nonelderly households without children present. The nonelderly households are further divided into five income groups on the basis of their annual market income—a measure that includes most sources of income other than transfer payments. (CBO excluded elderly households from the analysis of income groups because annual market income is not a good measure of resources for those households, many of whom rely heavily on nonmarket income, such as Social Security benefits.)

To compare how much the federal government spent on people in those types of households or income

groups with how much the households paid in taxes in 2006, CBO calculated two measures:

  • Average transfers minus taxes represents average federal spending per household on cash transfers (such as Social Security benefits), near-cash transfers (such as food assistance), and health care transfers (such as Medicare benefits) minus average taxes paid per household. CBO calculated average transfers minus taxes for each of the three types of households and five income groups included in the analysis. That measure—which is sometimes used as a proxy for how the federal government’s spending programs and taxes affect the resources available to households—incorporates all of the taxes examined in this analysis but omits a substantial share of federal spending.
  • Average spending minus taxes per household is a broader measure. It represents average federal spending per household on cash, near-cash, and health care transfers, plus average spending on almost all of the other goods and services that the government provides (such as national defense), minus average taxes paid per household. That measure incorporates all of the spending and taxes examined in this report.

CBO allocated spending on transfers to participants in various programs using survey data collected by the Census Bureau as well as data from the Internal Revenue Service—but such data are not available for spending on most other goods and services, so CBO allocated those amounts to all households. Because of uncertainty about the best approach to use, CBO allocated that spending in two ways: in proportion to each household’s share of the population and in proportion to each household’s share of total market income.

The first six figures summarize the results of CBO’s analyses by type of household. The remaining figures show the results by income group for nonelderly households.

Category: Taxes

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