transfers

Has the US tax and transfer system reached an egalitarian ideal? That’s one reading of this new working paper “How Progressive is the U.S. Tax System?” by Coleman and Weisbach. After accounting for all taxes and transfers (red lines in the charts), Americans across the income distribution saw roughly 250% real gains in income since 1966:

While market income has grown faster at the top of the income distribution (especially the top 1%), we also tax the rich heavily and use much of that tax revenue to fund direct transfers to poorer Americans and fund programs (such as Medicaid) which benefit poorer Americans. Put it all together, and everyone has seen similar gains over the past five decades, and these gains are fairly large: no Great Stagnation!

I’ve written about government spending before. But not all spending is the same. Building a bridge, buying a stapler, and taking from Peter to pay Paul are all different types of spending. I want to illustrate that last category. Anytime that the government gives money to someone without purchasing a good or service or making an interest payment, it’s called a ‘transfer’. People get excited about transfers. Social security is a transfer and so is unemployment insurance benefits. Those nice covid checks? Also transfers.

Here I’ll focus on Federal transfers, though the data on all transfers is very similar if you include states in the analysis. Let’s start with the raw numbers. Below is data on GDP, Federal spending, and federal transfers. Suffice it to say that they are bigger than they used to be. They’ve all been growing geometrically and they all exhibit bumps near recessions.

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