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Where do taxes really go? Payments to other people!

If you think the federal taxes you pay go to run the federal government, think again. This year, every dime (and more) that the feds collect is going out in payments to other people.

That is, Washington is redistributing even more wealth than it takes in.

With every dollar the feds collect from the "Peters" going to the "Pauls," and then some, nothing is left to pay the more than 2 million federal civilian employees, the armed forces or otherwise run the government.

The White House Office of Management and Budget calls the category "Payments for Individuals." It includes more than 100 antipoverty programs such as welfare, food stamps and Medicaid--plus tens of billions each year for "tax credits" to people who pay no income tax.


But the bulk of it goes to folks who mostly aren't below or near the poverty line--Social Security and Medicare being by far the largest, but also unemployment benefits, student assistance and day-care payments, to name a few.

Only about 6 percent or 7 percent is for items arguably related to delivery of (past) government services--mainly veterans' benefits and civil-service retirement checks. Factor those out, and this year's projected Payments for Individuals still total more than federal revenues.

The chart above shows how Payments for Individuals, or PFIs, have skyrocketed more than 1,600 percent since 1945--from 1 percent of GDP to 16.4 percent.

This year, the feds will spend $2.39 trillion in PFIs, amounting to nearly two-thirds of all federal outlays--now over 24 percent of GDP under the Obama-era spending explosion. And we're running a huge deficit--tax collections, due to recession-reduced incomes, are now only 14.8 percent of GDP.

And, for the first time in history, PFIs--at 16.4 percent of GDP--exceed federal revenues. The difference--1.6 percent of GDP--amounts to about $228 billion.

That is, the feds are spending $228 billion more than they collect per year in taxes--on just PFIs.

This setup has plenty of "Pauls" who are being paid--nearly half the "taxpayers" don't even pay any taxes. But the burden is not spread evenly among the "Peters": The top 1 percent of income-taxpayers fork over more than the bottom 95 percent.

But it's not really good for the "Pauls." The system is so unjust and incentive-robbing--not only to the middle class and the "rich," but also to the poor--that, as the US Census Bureau recently reported, median family income has barely improved for a decade and poverty levels are now at a 15-year high.

And, despite all this redistribution of wealth, the wealthiest percent of Americans somehow manage to capture almost exactly the same share of overall wealth as they did in 1920.

So if robbing the "Peters" to pay the "Pauls" hasn't helped the "Pauls," what has all this redistribution accomplished?

Just four things--all bad:

* It's lowered overall prosperity by robbing the entrepreneurial class of incentives, which has resulted in less business expansion and fewer jobs.

* It's helped grow a vast nanny state by creating a convenient co-dependency between it and the poor.

* It's kept the poor where they are, by eliminating the incentive for work, and stripped them of their dignity.

* It's taken a terrible toll on the middle class--which, not being among the "Pauls," is taxed to death to pay for it all, and has ended up with the same share of a smaller pie.

Taxes are for running the business of government, not for politicians to award as favors while talking about "fairness."

It's high time liberals give up pretending they're evening the score, and focus on equalizing opportunities, not outcomes.

Stephen B. Meister is a partner of Meister, Seelig and Fein LLP

This article first appeared in the New York Post.
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Comment:Where do taxes really go? Payments to other people!
Author:Meister, Stephen B.
Publication:Real Estate Weekly
Date:Oct 6, 2010
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