A Note on Tax-Expenditure Entitlements and Welfare
George H. Blackford © 7/7/2013
According to the Joint Committee on Taxation there were over 200 provisions in the federal tax code in 2007 that provided "a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability." Such provisions, which are generally referred to as tax breaks or loopholes, are “designed to encourage certain kinds of behavior by taxpayers or to aid taxpayers in special circumstances . . . [and] may, in effect, be viewed as spending programs channeled through the tax system.” Since the benefits of these "spending programs channeled through the tax system" are guaranteed by law to all who qualify they are, in fact, entitlement programs.
Tax-expenditure entitlement programs play an important role in redistributing income from the general taxpayer to various income groups within our society, a larger role than that played by welfare.
Tax Expenditures and the Redistribution of Income
The Joint Committee estimated that the total of federal tax-expenditures came to more than $1,035 billion in 2007 and that approximately 10% of the benefits of these tax-expenditures went to corporations or other businesses and 90% to individuals. These estimates are, in effect, gross estimates in that they only consider how a particular tax expenditure benefits taxpayers directly without considering how eliminating that expenditure will interact with other tax expenditures that affect taxpayers. Nor do they take into consideration how these interactions will affect taxpayers when groups of tax expenditures are eliminated.
Leonard Burman, Eric Toder, and Christopher Geissler at the Tax Policy Center of the Urban Institute and Brookings Institution have examined these interaction effects for the 90% of tax expenditures that benefited individuals and have provided estimates of the way in which tax expenditures affect the after-tax income of various income groups. These estimates for six major categories of tax expenditures (Exclusions, Above-line deductions, Itemized Deductions, Refundable Credits, Non-Refundable Credits, and the special treatment of Capital Gains/Dividends) are summarized in Table 14.3.
Table 14.3: Tax Expenditures as a Percentage of After-Tax Income, 2007.
Program
Quintile
Top 1%
All
1st
2nd
3rd
4th
5th
0.54
2.99
3.79
3.68
4.74
2.9
4.19
0.01
0.06
0.09
0.11
0.08
0.06
0.08
0.02
0.11
0.38
1.09
2.91
3.24
1.97
5.49
5.00
2.20
0.99
0.25
0.00
1.14
0.05
0.28
0.33
0.23
0.06
0.00
0.14
0.00
0.01
0.04
0.12
2.11
5.87
1.26
Total
6.52
8.16
6.76
6.79
11.36
13.53
9.57
Source: Burman, Toder, and Geissler.
This table shows the extent to which after-tax income in each quintile (20%) and the top 1% of the income distribution would be reduced—after adjusting for the interactions between tax expenditures within each category—if each of the six categories of tax expenditures were eliminated as well as if all tax-expenditures were eliminated.
Table 14.3 makes it possible to calculate the average and total benefits received by each income group from each category of tax expenditure in this table as well as the benefits received by each income group from all tax expenditures combined.
Tax Expenditures versus Welfare
In examining Table 14.3 it is apparent that the bulk of the redistribution of income brought about by tax expenditures is from the general taxpayer to the top of the income distribution, not to the bottom. The extent to which this is so can be seen in Table 14.4 which shows the average and total benefits received by each income group from all tax expenditures.[1]
Table 14.4: Total Tax-Expenditure Benefits by Income Group, 2007.
Income Group
Average After-Tax Income*
x
Benefit / After-Tax Income**
=
Average Benefit
x
Number of Households (Billions)***
=
Total Benefit (billions)
1st Quintile
$17,700
0.0652
$1,154
0.0230
$26.5
2nd Quintile
$38,000
0.0816
$3,101
0.0230
$71.2
3rd Quintile
$55,300
0.0676
$3,738
0.0230
$85.8
4th Quintile
$77,700
0.0679
$5,276
0.0230
$121.1
5th Quintile
$198,300
0.1136
$22,527
0.0230
$517.0
80%-99%
$139,279
0.1028
$14,315
0.0218
$312.1
Top 1%
$1,319,700
0.1353
$178,555
0.0011
$204.9
All
$76,400
0.0957
$7,311
0.1148
$839.1
Sum of Quintiles
=
$821.6
Source: *Congressional Budget Office, **Burman et al., ***Census Bureau.
It is clear from this table that tax expenditures definitely do not have the effect of redistributing income from the general taxpayer to the poor, but rather, have the effect of redistributing income from the general taxpayer to the top of the income distribution. In terms of real money, the $22,527 Average Benefit from all tax expenditures that went to the top 20% of the income distribution in 2007 was almost 20 times greater than the $1,154 Average Benefit that went to the bottom 20% and 6 times greater than the $3,738 Average Benefit that went to the middle 20%.
By the same token, the $178,555 Average Benefit that went to the Top 1% was 155 times greater than the $1,154 Average Benefit that went to the bottom 20%, 48 times greater than the $3,738 Average Benefit that went to the middle 20%, and almost 8 times greater than the $22,527 Average Benefit that went to the top 20% which, of course, includes the Top 1%. When we exclude the Top 1% from the top 20% we find that the Average Benefit of the remaining 19% of the income distribution (80%-99%) was only $14,315 in 2007.[2] This is less than 1/12 of the Average Benefit of the Top 1% and is only 3.8 and 12.5 times the Average Benefit of the middle and bottom quintiles, respectively, compared to the 48 and 155 ratios for the Top 1% relative to these quintiles.
More important, however, is the fact that when we compare the absolute magnitude of the Total Benefit received by the various income groups in 2007 we find that the $517.0 billion that went to the top 20% of the income distribution was $73.9 billion greater than the entire $444.7 billion the federal government spent on welfare in that year, and of particular interest is the $204.9 billion of Total Benefit that went to the Top 1%.
The $204.9 billion that went to the Top 1% of the income distribution in 2007—enough to provide an average benefit of $178,555 for each member of the Top 1% in that year—was almost six times the $34.9 billion the federal government spent in 2007 on Food Stamps to provide "nutrition assistance to millions of . . . low income individuals and families" with an average benefit of less than $1,200/year. It was over six times the $32.8 billion spent in 2007 on Supplemental Security Income (SSI) to aid “the aged, blind, and disabled who have little or no income . . . to meet basic needs for food, clothing, and shelter” with its average benefit of $5,244.72/year. And it was almost ten times the $21.1 billion the federal government spent in 2007 on Temporary Assistance to Needy Families to “help move recipients into work and turn welfare into a program of temporary assistance” with its average benefit of less than $10,000/year.
In fact, the $204.9 billion in tax-expenditure Total Benefits that went to the Top 1% of the income distribution in 2007 that provided an Average Benefit of $178,555 for members of the Top 1% of the income distribution in 2007 was more than enough to pay for all of the above welfare programs combined plus the $33.0 billion that went to Housing assistance in 2007, the $27.5 billion that went to Student Aid, the $13.0 billion that went to Child nutrition and special milk programs, the $6.6 billion that went to the Payments to States—Foster Care/Adoption Assist program, the $6.0 billion that went to the Children's health insurance program, the $5.3 billion that went to the Supplemental feeding programs (WIC and CSFP), the $5.1 billion that went to Payments to States for daycare assistance, the $3.4 billion that went to Veterans non-service connected pensions, the $3.2 billion that went to Substance abuse and mental health services, the $3.3 billion that went to Indian health, and the $2.5 billion that went to the Low income home energy assistance program with $5.4 billion left over in change.
In other words, the $204.9 billion the Top 1% of the income distribution saved in taxes as a result of the tax-expenditure entitlement benefits that are built into the tax code—benefits that produced an average government subsidy of $178,555 to the members of the Top 1% of the income distribution in 2007—was enough to fund all of the federal government's welfare programs except Medicaid and that portion of the Refundable Credits program the federal government actually spent on refunds.
What's more, the $312.1 billion in tax-expenditure entitlements that went to the rest of the 19% of the income distribution in the 5th Quintile that provided an Average Benefit of $14,315 to members of the 80%-99% income group was enough to pay for the $190 billion the federal government spent on Medicaid in 2007 plus the $54.5 billion the federal government actually spent on Refundable Credits with $67.5 billion to spare. This $67.5 billion in itself would have been enough to provide an average benefit of $2,945 to each member of richest quintile of the income distribution. This is not only more than twice the $1,153 Average Benefit received by the poorest quintile from all tax expenditures in 2007, it is also more than twice the $1,200 average benefit the federal government paid out in Food Stamps in 2007 to provide "nutrition assistance to millions of . . . low income individuals and families."
It is also instructive to examine the individual categories of tax expenditures summarized in Table 14.3.
Exclusions
Exclusions refers to various forms of income (e.g., scholarships, fellowship grants, welfare benefits, employee fringe benefits, interest on municipal bonds, capital gains transferred at death) that do not have to be reported to the Internal Revenue Service. Exclusions are excluded from gross income.
The average and total benefits received by each income group from Exclusions in 2007 that are implied by Table 14.3 are shown in Table 14.5.
Table 14.5: Benefits from Exclusions by Income Group, 2007.
Income Group
Average After-Tax Income*
x
Benefit / After-Tax Income**
=
Average Benefit
x
Number of Households (Billions)***
=
Total Benefit (billions)
1st Quintile
$17,700
0.0054
$96
0.0230
$2.2
2nd Quintile
$38,000
0.0299
$1,136
0.0230
$26.1
3rd Quintile
$55,300
0.0379
$2,096
0.0230
$48.1
4th Quintile
$77,700
0.0368
$2,859
0.0230
$65.6
5th Quintile
$198,300
0.0474
$9,399
0.0230
$215.7
80%-99%
$139,279
0.0566
$7,880
0.0218
$171.8
Top 1%
$1,319,700
0.0290
$38,271
0.0011
$43.9
All
$76,400
0.0419
$3,201
0.1148
$367.4
Sum of Quintiles
=
$357.7
Source: *Congressional Budget Office, **Burman et al., ***Census Bureau.
This table shows the way in which Exclusions, the largest category of tax expenditures, redistribute income from the general taxpayer to the various income groups within society. Here we find that only $2.2 billion of the $357.7 billion of Total Benefit from Exclusions (less than 1%) went to the poorest quintile (1st Quintile) with an Average Benefit of $96 while some $215.7 billion (60%) went to the richest quintile (5th Quintile) with an Average Benefit of $9,399.
If we break down the richest quintile we find that 20% ($43.9 billion) of the $215.7 billion worth of Total Benefit that went to the top 20% of the income distribution, in fact, went to the Top 1% with an average benefit of $38,271.
The largest beneficiary of the Exclusions tax-expenditure entitlements in terms of Average Benefit is clearly the Top 1% of the income distribution which exceeded the next highest Average Benefit, $7,880 received by the top 80%-99%, by $30,391.
When we compare the bottom 40% (1st Quintile + 2nd Quintile) of the income distribution with top 40% (4th Quintile + 5th Quintile) we find that the bottom 40% received 8% ($28.3 billion) of the $357.7 billion of Total Benefit from Exclusions while the top 40% received more than 79% ($281.4 billion) of these benefits, the difference being $253.1 billion. This $253.1 billion difference was equivalent to 57% of the total of $$444.7 billion the federal government spent on welfare in 2007.
Above Line Deductions
Above-Line Deductions are deductions from gross income (e.g., medical insurance premiums for the self employed, standard deductions for the blind and elderly) that taxpayers are allowed to take whether they choose to itemize their deductions or not. Above-Line Deductions are subtracted from gross income to arrive at Adjusted Gross Income.
The average and total benefits received by each income group from Above-Line Deductions in 2007 are shown in Table 14.6.
Table 14.6: Benefits from Above Line Deductions by Income Group, 2007.
Income Group
Average After-Tax Income*
x
Benefit / After-Tax Income**
=
Average Benefit
x
Number of Households (Billions)***
=
Total Benefit (billions)
1st Quintile
$17,700
0.0001
$2
0.0230
$0.0
2nd Quintile
$38,000
0.0006
$23
0.0230
$0.5
3rd Quintile
$55,300
0.0009
$50
0.0230
$1.1
4th Quintile
$77,700
0.0011
$85
0.0230
$2.0
5th Quintile
$198,300
0.0008
$159
0.0230
$3.6
80%-99%
$139,279
0.0009
$125
0.0218
$2.7
Top 1%
$1,319,700
0.0006
$792
0.0011
$0.9
All
$76,400
0.0008
$61
0.1148
$7.0
Sum of Quintiles
=
$7.3
Source: *Congressional Budget Office, **Burman et al., ***Census Bureau.
Above-Line Deductions is the smallest category of tax expenditures in Table 14.3 with only $7.3 billion worth of benefits in 2007. This tax-expenditure entitlement is relatively insignificant, both in terms of the federal budget and in terms of other tax expenditures. Here we find that virtually none of the $7.3 billion of Total Benefit from Above-Line Deductions went to the poorest quintile with an Average Benefit of only $2 while some $3.6 billion (50%) went to the richest quintile with an Average Benefit of $159.
If we break down the richest quintile we find that 25% ($0.9 billion) of the $3.6 billion worth of Total Benefit that went to the top 20%, in fact, went to the Top 1% with an Average Benefit of $792.
When we compare the bottom 40% of the income distribution with the top 40% we find that the bottom 40% received less than 8% ($0.6 billion) of the $7.3 billion worth of Total Benefit from Above-Line Deductions while the top 40% received more than 76% ($5.6 billion) of these benefits, the difference being $5.0 billion. This $5.6 billion was less than 2% of the total amount the federal government spent on welfare in 2007.
Itemized Deductions
Taxpayers can choose between subtracting a fixed Standard Deduction from their adjusted gross income in arriving at their taxable income or of listing separately (itemizing) the individual deductions (e.g., mortgage interest, state and local taxes, medical expenses, charitable contributions, investment interest and other investment and financial expenses) they may be eligible for.
The average and total benefits received by each income group from Itemized Deductions in 2007 are shown in Table 14.7.
Table 14.7: Itemized Deductions by Income Group, 2007.
Income Group
Average After-Tax Income*
x
Benefit / After-Tax Income**
=
Average Benefit
x
Number of Households (Billions)***
=
Total Benefit (billions)
1st Quintile
$17,700
0.0002
$4
0.0230
$0.1
2nd Quintile
$38,000
0.0011
$42
0.0230
$1.0
3rd Quintile
$55,300
0.0038
$210
0.0230
$4.8
4th Quintile
$77,700
0.0109
$847
0.0230
$19.4
5th Quintile
$198,300
0.0291
$5,771
0.0230
$132.4
80%-99%
$139,279
0.0275
$3,824
0.0218
$83.4
Top 1%
$1,319,700
0.0324
$42,758
0.0011
$49.1
All
$76,400
0.0197
$1,505
0.1148
$172.7
Sum of Quintiles
=
$157.7
Source: *Congressional Budget Office, **Burman et al., ***Census Bureau.
Itemized Deductions is the second largest category of tax expenditures. Here we find that only $0.1 billion of the $157.7 billion of Total Benefit from Itemized Deductions (less than 1%) went to the poorest quintile with an Average Benefit of $4 while some $132.4 billion (84%) went to the richest quintile with an Average Benefit of $5,771.
If we break down the richest quintile we find that 37% ($49.1 billion) of the $132.4 billion worth of Total Benefit that went to the top 20%, in fact, went to the Top 1% with an Average Benefit of $42,758.
The largest beneficiary of the Itemized Deductions tax-expenditure entitlement in terms of Average Benefit is clearly the Top 1% of the income distribution which exceeded the next highest Average Benefit, $3,824 received by the 80%-99% income group, by $38,934.
When we compare the bottom 40% of the income distribution with the top 40% we find that the bottom 40% received less than 1% ($1.0 billion) of the $157.7 billion of Total Benefit from Itemized Deductions while the top 40% received 96% ($151.9 billion) of these benefits, the difference being $150.8 billion. This $150.8 billion difference was equivalent to 34% of the $$444.7 billion the federal government spent on welfare in 2007.
Refundable Credits
A tax credit (e.g., the Adoption Credit or Earned Income Tax Credit) is an amount that eligible taxpayers are allowed to subtract from their taxes owed, as determined by their taxable income and the applicable tax rates, in order to determine the amount of taxes they must actually pay.
A Non-Refundable Credits (e.g., the Adoption Credit) is a credit the taxpayer is entitled to only up to the amount of taxes owed. A Non-Refundable Credits cannot reduce the after-credit taxes paid below zero and, thereby, lead to a payment from the government.
A Refundable Credits (e.g., the Earned Income Tax Credit) is a credit for which the taxpayer is entitled to the full amount of the credit whether the credit exceeds the amount of before-credit taxes owed or not. If the amount of a Refundable Credits exceeds the before-credit taxes owed, the taxpayer pays no taxes, and the government must pay (refund) to the taxpayer the difference between the tax credit and the before-credit taxes owed.
The average and total benefits received by each income group from Refundable Credits are shown in Table 14.8.
Table 14.8: Benefits from Refundable Credits by Income Group, 2007.
Income Group
Average After-Tax Income*
x
Benefit / After-Tax Income**
=
Average Benefit
x
Number of Households (Billions)***
=
Total Benefit (billions)
1st Quintile
$17,700
0.0549
$972
0.0230
$22.3
2nd Quintile
$38,000
0.0500
$1,900
0.0230
$43.6
3rd Quintile
$55,300
0.0220
$1,217
0.0230
$27.9
4th Quintile
$77,700
0.0099
$769
0.0230
$17.7
5th Quintile
$198,300
0.0025
$496
0.0230
$11.4
80%-99%
$139,279
0.0037
$522
0.0218
$11.4
Top 1%
$1,319,700
0.0000
$0
0.0011
$0.0
All
$76,400
0.0114
$871
0.1148
$100.0
Sum of Quintiles
=
$122.9
Source: *Congressional Budget Office, **Burman et al., ***Census Bureau.
This table shows the way in which Refundable Credits, the forth largest category of tax expenditures, redistributed income from the general taxpayer to the various income groups within society. Here we find that $22.3 billion of the $122.9 billion of the Total Benefit from Refundable Credits (18%) went to the poorest quintile with an Average Benefit of $972 while only $11.4 billion (9%) of the benefits of this tax expenditure went to the richest quintile with an Average Benefit of $496.
If we break down the richest quintile we find that all of the $11.4 billion worth of Total Benefit that went to the top 20% of the income distribution went to the 80%-99% income group with an Average Benefit of $522. None went to the Top 1%.
The largest beneficiary of the Refundable Credits tax-expenditure entitlement in terms of Average Benefit is the 2nd Quintile of the income distribution with an Average Benefit of $1,900. At the same time, the 3rd Quintile also received a respectable share of the benefits from this tax-expenditure entitlement with an Average Benefit of $1,217, and the 4th Quintile and 80%-99% income group received an Average Benefit equal to 79% ($769) and 51% ($496), respectively, of the $972 Average Benefit received by the poorest quintile.
When we compare the bottom and top 40% of the income distribution we find that the bottom 40% received 54% ($65.9 billion) of the $122.9 billion of Total Benefit from Refundable Credits while the top 40% received only 24% ($29.0 billion) of these benefits, the difference being $36.9 billion. This $36.9 billion was equivalent to 9% of the $$444.7 billion the federal government spent on welfare in 2007.[3]
Refundable Credits is the only category of tax expenditure that has the net effect of redistributing income from the general taxpayer to the bottom 40% of the income distribution.
Non-Refundable Credits
The average and total benefits received by each income group from Non-Refundable Credits are shown in Table 14.9.
Table 14.9: Benefits from Non-Refundable Credits by Income Group, 2007.
Income Group
Average After-Tax Income*
x
Benefit / After-Tax Income**
=
Average Benefit
x
Number of Households (Billions)***
=
Total Benefit (billions)
1st Quintile
$17,700
0.0005
$9
0.0230
$0.2
2nd Quintile
$38,000
0.0028
$106
0.0230
$2.4
3rd Quintile
$55,300
0.0033
$182
0.0230
$4.2
4th Quintile
$77,700
0.0023
$179
0.0230
$4.1
5th Quintile
$198,300
0.0006
$119
0.0230
$2.7
80%-99%
$139,279
0.0009
$125
0.0218
$2.7
Top 1%
$1,319,700
0.0000
$0
0.0011
$0.0
All
$76,400
0.0014
$107
0.1148
$12.3
Sum of Quintiles
=
$13.7
Source: *Congressional Budget Office, **Burman et al., ***Census Bureau.
Non-Refundable Credits are the second smallest category of tax expenditures with only $13.7 billion in Total Benefit. This category is rather insignificant compared to the federal budget and the other categories of tax expenditures. It is also fairly evenly distributed among the middle income groups compared to the other categories of tax expenditures. Here we find that only $0.2 billion of the $13.7 billion of Total Benefit from Non-Refundable Credits (less than 2%) went to the poorest quintile with an Average Benefit of $9 while $2.7 billion (20%) went to the richest quintile with an Average Benefit of $119.
If we break down the richest quintile we find that all of the $2.7 billion worth of Total Benefit that went to the top 20% of the income distribution went to the 80%-99% income group with an Average Benefit of $125. None went to the Top 1%.
The largest beneficiary of the Non-Refundable Credits tax-expenditure entitlement in terms of Average Benefit is the 3rd Quintile with an Average Benefit of $182, and the 4rt Quintile ran a close second with an Average Benefit of $179. At the same time, the 2nd Quintile and 80%-99% income group received an Average Benefit equal to 58% ($106) and 69% ($125), respectively, of the $182 Average Benefit received by the 3rd Quintile.
When we compare the bottom 40% of the income distribution with the top 40% we find that the bottom 40% received 19% ($2.6 billion) of the $13.7 billion worth of Total Benefit from Non-Refundable Credits while the top 40% received 50% ($6.8 billion) of these benefits, the difference being $4.2 billion. This difference was equivalent to 1% of the $$444.7 billion the federal government spent on welfare in 2007.
Capital Gains/Dividends
Most capital gains were taxed at a maximum tax rate of 15% in 2007, rather than at the rates that apply to other forms of taxable income, and qualified dividends were taxed at the same rates as capital gains.
The average and total benefits received by each income group from Capital Gains/Dividends are shown in Table 14.10.
Table 14.10: Benefits from Capital Gains/Dividends by Income Group, 2007.
Income Group
Average After-Tax Income*
x
Benefit / After-Tax Income**
=
Average Benefit
x
Number of Households (Billions)***
=
Total Benefit (billions)
1st Quintile
$17,700
0.0000
$0
0.0230
$0.0
2nd Quintile
$38,000
0.0001
$4
0.0230
$0.1
3rd Quintile
$55,300
0.0004
$22
0.0230
$0.5
4th Quintile
$77,700
0.0012
$93
0.0230
$2.1
5th Quintile
$198,300
0.0211
$4,184
0.0230
$96.0
80%-99%
$139,279
0.0023
$327
0.0218
$7.1
Top 1%
$1,319,700
0.0587
$77,466
0.0011
$88.9
All
$76,400
0.0126
$963
0.1148
$110.5
Sum of Quintiles
=
$98.8
Source: *Congressional Budget Office, **Burman et al., ***Census Bureau.
This table shows the way in which Capital Gains/Dividends, the third largest category of tax expenditures, redistributed income from the general taxpayer to the various income groups within society. Here we find that none of the $98.8 billion of Total Benefit from Capital Gains/Dividends went to the poorest quintile while some $96.0 billion (97%) went to the richest quintile with an Average Benefit of $4,184.
If we break down the richest quintile we find that 93% ($88.9 billion) of the $96.0 billion worth of Total Benefit that went to the top 20% of the income distribution, in fact, went to the Top 1% with an Average Benefit of $77,466. The largest beneficiary of the Capital Gains/Dividends tax-expenditure entitlement in terms of Average Benefit is clearly the Top 1% of the income distribution which exceeded the next highest Average Benefit, $327 received by the 80%-99%, income group by $77,139.
When we compare the bottom 40% of the income distribution with the top 40% we find that the bottom 40% received less than 1% ($0.1 billion) of the $95.5 billion of the Total Benefit from Capital Gains/Dividends went to the bottom 40% while the top 40% received more than 99% ($98.2 billion) of these benefits, the difference being $98.1 billion. This was equivalent to 22% of the $$444.7 billion the federal government spent on welfare in 2007.
Conclusion
It is worth noting that the $77,466 Average Benefit the Top 1% received from the single tax-expenditure entitlement category Capital Gains/Dividends far exceeded the Average Benefit in Table 14.4 from all tax expenditures for any other income group. The next closest was the 80%-99% income group with a total Average Benefit from all tax expenditures of $14,315. It is also fairly safe to say that the $77,466 Average Benefit the Top 1% received from the single tax-expenditure entitlement category Capital Gains/Dividends far exceeded any cash welfare benefit ever received by anyone on welfare.
The special treatment of Capital Gains/Dividends in the tax code is clearly a far more lucrative welfare program for the wealthy than any welfare program available to the poor.
Endnotes
[1] The Average Benefit in this table is obtained by multiplying the Tax Expenditures as a Percentage of After-Tax Income for Total in Table 14.3 (i.e., the Benefit / After-Tax Income column in Table 14.4 is obtained from the line for Total in Table 14.3) by the Average After-Tax Income that is provided by the Congressional Budget Office for each income group. The Total Benefit in Table 14.4 is calculated by multiplying the number of households in each group as provided by the Census Bureau by the Average Benefit of each income group.
[2] The 80%-99% income group is not contained in Table 14.3, but the Total Benefit received by this income group is easily calculated by subtracting the Total Benefit received by the Top 1% from those received by the 5th Quintile. The Number of Households in this group is give by difference between the number of households in the 5th Quintile and Top 1%, and the Average Benefit is given by the ratio of Total Benefit and the Number of Households in this group. Since the average income of the 5th Quintile (Y5) is equal to the Total Income in this quintile divided by the Number of households in each quintile (N), the average income of this quintile is given by:
(1) Y5 = [Y19x(19/20)N + Y1x(N/20)] / N,
where Y19 and Y1 are the average incomes of the 80%-99% and Top 1% income groups, respectively. Thus, the Average Income of the 80%-99% income group is given by:
(2) Y19 = (Y5 - Y1/20) x ( 20/19).
The Excel spreadsheet by which all of the calculations in this note have been made can be downloaded by clicking on this link.
[3] There is a bit of double counting here. The $122.9 billion of the Total Benefit from the Refundable Credits includes the refunded portion of this tax expenditure which amounted to over $54.5 billion in 2007. The refunded portion of this tax expenditure was an actual expenditure in the federal budget in 2007 and is included in the total of $$444.7 billion the federal government spent on welfare in that year.
