The Progressivity of Taxes and Transfers

Greg Mankiw:  

To update one of the tables for the next edition of my favorite textbook, I have been looking at the new CBO report on the distribution of income and taxes.  I found the following calculations, based on the numbers in the CBOs Table 7, illuminating.

Because transfer payments are, in effect, the opposite of taxes, it makes sense to look not just at taxes paid, but at taxes paid minus transfers received.  For 2009, the most recent year available, here are taxes less transfers as a percentage of market income (income that households earned from their work and savings):

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

The negative 301 percent means that a typical family in the bottom quintile receives about $3 in transfer payments for every dollar earned.

The most surprising fact to me was that the effective tax rate is negative for the middle quintile. 

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