Incidence of Federal Taxes and Transfers

Figure 16-8 shows the results of a recent study of the incidence of all U.S. taxes and cash transfers; in this figure, transfers are treated as negative taxes and are measured in the negative direction. The interesting contribution of ~s approach is that it examines lift rather than looking at only a year. Thus it takes into account important that occur over a lifetime (e.g., people go’ in out of the labor market, and they pay social . taxes when young and then receive the taxes as benefits when retired). The study also takes into account the incredible complexity of our tax system, as described above.

This pattern of fiscal impact is similar to that found in other countries. Studies of the fiscal systems of high-income countries have determined that the tax system has almost no effect on the distribution of income. This surprising result comes because the effects of progressive income taxes are generally offset by regressive taxes, notably social security contributions and sales or value-added taxes. The major progressive element of public programs (that is, the elements which redistribute income to low income households) is income-support programs such as cash grants, food stamps, public pensions, and subsidized health care.