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March 26, 2007

Playing with Tax Statistics

I noticed yesterday that the Drudge Report had a link to a new study showing a vast difference between the benefits the poor get from government and the benefits the rich get. The link gave the impression that for every $8.21 a poor person gets, a rich person only gets $0.41. In actuality, the study found that for every dollar a poor person pays, he gets $8.21 back in services, and for every dollar a rich person pays, he gets $0.41 back. The difference between these two implications is tremendous. But either way, the study's real message is how unfair it is that the rich in this country have to share their wealth with the rest of us.

Overall, we find that America's lowest-earning one-fifth of households received roughly $8.21 in government spending for each dollar of taxes paid in 2004. Households with middle-incomes received $1.30 per tax dollar, and America's highest-earning households received $0.41. Government spending targeted at the lowest-earning 60 percent of U.S. households is larger than what they paid in federal, state and local taxes. In 2004, between $1.03 trillion and $1.53 trillion was redistributed downward from the two highest income quintiles to the three lowest income quintiles through government taxes and spending policy.

This is all very interesting when you consider who makes up the Board of Directors of the Tax Foundation, which produced the study. Bill Archer, now a Senior Advisor to PricewaterhouseCoopers LLP, was formerly a Republican Congressman from Texas, replacing George H.W. Bush when he became Vice President, and served as the Chairman of the House Ways and Means Committee. Wayne Gable is Managing Director of Federal Affairs at Koch Industries and President of the Charles G. Koch Charitable Foundation, as well as a director for Citizens for a Sound Economy. The Kochs and their foundations are thought to be the source of the funding for last year's multi-state initiative efforts by Howard Rich. R. Glenn Hubbard, Dean of the School of Business at Columbia University, and member of the Council on Foreign Relations, was thought to be one of the top three possible replacements for Alan Greenspan. He was head of the Council of Economic Advisors under George W. Bush, is a free market economist, and has always been very supportive of Bush's economic policies. He also served six years as a Visiting Scholar for the American Enterprise Institute. James W. Lintott, Chairman of Sterling Foundation Management LLC, has been until recently associated solely with wealthy, private foundations. Joseph O. Luby, Jr. is Assistant General Tax Counsel in the Tax Department of Exxon Mobil Corporation. He is also a member of the Board of Directors for the Tax Council Policy Institute, a corporate run think tank. It doesn't take a genius to figure out these guys aren't particularly concerned about the poor in America – but they are very concerned about the rich and are politically well-connected.

Now, I am not a mathematical wizard, so I would urge those of you who are to correct me if I am wrong or maybe even point out things I have missed here. But I'm having trouble reconciling the numbers in the study. First, the study divides America into quintiles of households, with approximately 58 million households in each quintile. It then says the bottom quintile pays an average of $8,651 in federal, state and local taxes and the top quintile pays an average of $163,866 in taxes. At the same time, however, it says the total federal, state and local taxes collected is $3.5 trillion which, if you divide it over 291 million households is $12,027, but the average per household benefits from these taxes, it says, are 31,107. So either I can't read numbers or we're doing an awful lot of borrowing.

That aside, let's go with their figures and see what the per household benefit is for a poor person as opposed to a rich person in this country, based on the poor person receiving back $8.21 in benefits for every dollar paid and the rich person receiving back $0.41 in benefits for every dollar paid.

The poor pay an average $8,651 in taxes X $8.21 = $71,024 in benefits
The rich pay an average $163,866 in taxes X $0.41 = $67,185 in benefits

I will note that where the study breaks these figures down it shows the difference between rich and poor in terms of amounts they receive being about the same, but the total amounts each receives are much lower. I will say right up front that for the life of me I can't figure out how they arrived at their numbers, but considering the rich never collect on unemployment or food stamps or any of the other items that make up the social safety net in this country, I don't think a disparity of about $4,000 a year is all that bad. But then, I'm not a really rich person.

You can read the full study here. I'd love to hear what you think about it.

Posted by Becky at March 26, 2007 08:56 AM