CBO study sheds light on income redistribution

Amid falling poll numbers, thanks to the Obamacare meltdown, President Barack Obama has tried to change the narrative with familiar, tired themes of income equality and higher taxes on the wealthy. But a new study from the Congressional Budget Office (CBO), via CNS News, undermines these themes, showing that the 40% of households paid 106.2% of net income taxes in 2010 (emphasis added):

The top 40 percent of households by before-tax income actually paid 106.2 percent of the nation’s net income taxes in 2010, according to a new study by the Congressional Budget Office.

At the same time, households in the bottom 40 percent took in an average of $18,950 in what the CBO called “government transfers” in 2010.

Taxpayers in the top 40 percent of households were able to pay more than 100 percent of net federal income taxes in 2010 because Americans in the bottom 40 percent actually paid negative income taxes, according to the CBO study entitled, “The Distribution of Household Income and Federal Taxes, 2010.
Although they paid negative federal income taxes on average in 2010, Americans in the bottom 40 percent of households did end up paying some taxes to the federal government that year, according to the CBO.

Households in the lowest quintile paid 5.6 percent of the social insurance taxes (for Medicare, Social Security, etc.), and 13.4 percent of the excise taxes. The CBO also allotted them a 1.7 percent share of corporate income taxes.

But when these taxes that those in the bottom quintile actually paid are balanced against the refundable tax credits they received, households in this quintile ended up paying only 0.4 percent of federal taxes in 2010.

That cuts to the core of President Obama’s arguments for closing tax loopholes and the need for more “fairness” in the tax code. The truth of the matter is that the tax code is already heavily redistributive. Of course, if President Obama admitted this, he would be taking away his “go to” issue when everything else is falling apart around him.

There aren’t solid numbers yet to come to this conclusion, but one could surmise that the share of net income taxes paid by the top 40% of Americans households will only rise due to the tax hikes passed at the beginning of the year.

It’s true that we need to broaden the tax base, but not the manner in which President Obama wants to accomplish that. Rather than closing tax loopholes and further discouraging economic growth, Congress should reduce expenditures (ie. deductions and tax credits) in the tax code, close loopholes and lower tax rates to ensure that reform is revenue-neutral.

And none of this even speaks to the actual problem with the budget. It’s not a lack of tax revenues, folks. The real problem is that major entitlement programs are growing at an unsustainable pace, according to a separate report from the CBO released in September.

Despite the fact that the federal government will collect 19.7% of gross domestic product (GDP) by 2038 — greater than the 17.4% average from 1973 to 2013 — Congress will spend 26.2% of GDP, based on current law, nearly three-quarters of which will be mandatory spending (Medicaid, Medicare, Security Security, and interest on the national debt).

Of course, these inconvenient truths don’t matter to President Obama. He’s still campaigning in hopes that he can save his presidency, even as much of his second term agenda is looking less and less likely to ever be considered in Congress.

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