Accounting for What Families Pay in Taxes and What They Receive in Government Spending

At their most basic level, budget debates in Washington are about "who gets what" and "who pays for it." In other words, how do tax and spending policies redistribute income?

Unfortunately, lawmakers tend to consider tax and spending issues in isolation rather than as two sides of the same coin. And this is very important since the line between tax and spending policy has become increasingly blurred in recent years as, for example, refundable tax credits have replaced direct spending programs as the preferred method of aiding low-to-middle income households.

After enacting tax and spending policies, lawmakers should have a basic understanding of what might be called a "fiscal accounting" of the amount of government benefits families receive compared to what they pay in taxes. This fiscal accounting ensures that tax and spending policies benefit their intended parties while meeting the broader social standards of fairness.

Until recently, no organization in Washington has ventured to comprehensively measure the distribution of federal taxes and spending—a technique known as "fiscal incidence" analysis. The Tax Foundation's Fiscal Incidence project is stepping forward to fill this void. Our Fiscal Incidence Model compares the distribution of all federal taxes to the distribution of all federal spending, calculating how much each family pays in taxes versus how much they get in government spending-in other words, each family's fiscal accounting. These individual results sum up into a national accounting of how much tax and spending policies combine to redistribute income from some Americans to others.