Everyone remembers President Obama’s now-infamous comment as a candidate that he thinks everyone is better when we “spread the wealth around.” Of course, we spread plenty of wealth around through the tax code before Obama became President. In 2006, the latest year of available data, the top 20 percent of earners paid over 86 percent of all income taxes. While the bottom 50 percent of earners paid almost no taxes whatsoever.
To get a complete picture of government redistribution, however, we need to know who receives the spending in addition to who pays the taxes.
The Tax Foundation released a new paper today, “How Much Does President Obama’s Budget Redistribute Income?” It puts both sides of the equation together and analyzes how much President Obama’s budget will increase redistribution.
The key findings include:
- In 2012, when President Obama’s policies have taken effect, income redistribution from the top-earning 1 percent of families will rise by an average of $64,000 per family.
- On average, a family in the top 5 percent would have an additional 1.8 percent of its market income redistributed as a result of President Obama’s policies (compared to baseline); for the top 1 percent only, that figure is over 3 percent.
- President Obama’s policies would reduce the amount of income redistribution from families in the 60th-95th percentiles.
- President Obama’s policies would increase the amount of income redistribution to families in the bottom 60 percent of the population, especially the bottom 20 percent.
This additional redistribution comes on the heels of the stimulus that already increased redistribution through refundable credits, including the Making Work Pay Credit.
Redistributing income hurts economic growth because it reduces the incentives for high-earners to work more and take on new economic risk. It discourages low-earners from doing the same, because they can maintain an acceptable standard of living without working more. Instead of pursuing these redistributionist policies, the President should pursue pro-growth policies that encourage Americans of all income levels to work more and generate new economic growth.