Taxes, Welfare, and Income Inequality: Here’s the CBO’s Latest Report

The CBO has released its annual report on the distribution of household income, and they’ve changed things up this year. They’re now measuring income in two ways:

  • Before taxes and transfers. This is basically market income.
  • After taxes and transfers. This is market income plus means-tested welfare benefits minus taxes paid.

This is handy because it allows us to zero in on the way that social welfare benefits change income distribution. There’s nothing surprising in this year’s report (which goes up through 2014), but it’s a good excuse to review some of the basics. Here are a few charts from the report.

The personal income tax is basically the only progressive federal tax we have. Everything else put together is a flat tax:

Two-thirds of welfare benefits come from Medicaid. Everything else—food stamps, WIC, Section 8 housing, etc.—amounts to only about a third of all benefits for the poor.

Welfare benefits make a difference. As the chart above shows, means-tested welfare benefits increase the income of the poorest by over 60 percent. Since 1980, market income for the poor has grown about a third as fast as market income for the well-to-do, but when you account for welfare benefits it’s grown nearly half as fast—and it’s grown faster than middle-class incomes.

The rich continue to outpace everyone. Even after you account for welfare benefits, the incomes of the top fifth have grown faster than anyone else. And the incomes of the top 1 percent have grown way faster.

It’s worth remembering that CBO figures are pretty solid. They count cash income, benefits (mainly health insurance), Social Security, welfare benefits, and taxes. It’s a very broad overview of total income.

DOES IT FEEL LIKE POLITICS IS AT A BREAKING POINT?

Headshot of Editor in Chief of Mother Jones, Clara Jeffery

It sure feels that way to me, and here at Mother Jones, we’ve been thinking a lot about what journalism needs to do differently, and how we can have the biggest impact.

We kept coming back to one word: corruption. Democracy and the rule of law being undermined by those with wealth and power for their own gain. So we're launching an ambitious Mother Jones Corruption Project to do deep, time-intensive reporting on systemic corruption, and asking the MoJo community to help crowdfund it.

We aim to hire, build a team, and give them the time and space needed to understand how we got here and how we might get out. We want to dig into the forces and decisions that have allowed massive conflicts of interest, influence peddling, and win-at-all-costs politics to flourish.

It's unlike anything we've done, and we have seed funding to get started, but we're looking to raise $500,000 from readers by July when we'll be making key budgeting decisions—and the more resources we have by then, the deeper we can dig. If our plan sounds good to you, please help kickstart it with a tax-deductible donation today.

Thanks for reading—whether or not you can pitch in today, or ever, I'm glad you're with us.

Signed by Clara Jeffery

Clara Jeffery, Editor-in-Chief

payment methods

We Recommend

Latest