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InsiderOnline Blog: July 2012

Tipping Points

We’ve noted previously that the rising percentage of non-taxpayers creates a seriously problem for a democracy: If a large group of people bear none of the cost of the political choices they make, they will make choices that are very costly to the rest of society. Indeed, Will Freeland and Scott Hodge have a new report out this week finding that the percentage of tax filers with zero income tax liability reached a new high of 41 percent in 2010, the latest year for which IRS data are available. [Tax Foundation, July 20]

But when you take into account the combined effects of both taxing and spending policies, maybe we have already blown past the tipping point. As Greg Mankiw notes, spending and taxing are two sides of the same coin, and recent data from the Congressional Budget Office now show that “the middle class, having long been a net contributor to the funding of government, is now a net recipient of government largess.”

Here’s what Mankiw found, using data from supplemental table 7 of the recent CBO report, “The Distribution of Household Income and Federal Taxes, 2008 and 2009”:

Bottom quintile: -301 percent
Second quintile: -42 percent
Middle quintile: -5 percent
Fourth quintile: 10 percent
Highest quintile: 22 percent
Top one percent: 28 percent

For every dollar it earns, the typical family in the bottom quintile receives $3 in transfer payments minus taxes. The data go back to 1979, and Mankiw notes that, for the middle quintile, this measure of redistribution had been positive (the quintile was a contributor to government funding) for every year up until 2007. [Greg Mankiw’s Blog, July 14]

Posted on 07/17/12 07:33 PM by Alex Adrianson

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