The Impact of Taxes AND Transfers

A lot of numbers get thrown about concerning the true burden of taxation. All of them miss the impact of an extremely important factor: government transfers. Government transfers are payments like Food Stamps, Earned Income Tax Credits, Social Security and free cellphones (yes the government subsidizes phone service and everyone who gets a telecomm bill pays for it). To evaluate the effective rate of taxation, you have to take these payments into account. After all, if you earn $2, are taxed $1 and you get $2 in payments, it would be disingenuous to say you have an effective tax rate of 50%.

So how do transfers affect the picture? For the lowest income group, income after taxes and transfers is four times that of income before taxes and transfers. Only about half of income earners actually have any positive effective tax after transfers. The media is ignorant on this subject. Willfully so.