New Report: Robbing Peter to Pay Peter

Approximately 20 percent of all government benefits are returned as taxes in a given year

NEW YORK, NY — About twenty percent of benefits distributed through the American welfare state return to the government through taxes on the same households every year. These are the findings of a new Manhattan Institute report from director of research and senior fellow Judge Glock, who shows how a large, unfocused system robs Peter to pay Peter—and creates significant costs for families and the government in the process. 

Glock’s report looks at what he calls “netting taxes,” those funds a household receives in benefits that are offset by what they pay in taxes in a given year. For example, if a household receives $1,000 in benefits and pays $3,000 in taxes, $1,000 dollars become netting taxes. The report estimates that in 2022, almost $800 billion of benefits were returned as netting taxes, about what the government spent on defense that year.  

Although netting taxes don’t redistribute any money, they do create significant waste. These include bureaucratic costs of handouts, which for many government programs equate to 15 cents per dollar distributed. There are also costs to families in trying to qualify for benefits, as well as receiving them in a form that is less useful, such as housing vouchers or food stamps, instead of the cash they earned.  

Glock describes the research in a new Wall Street Journal op-ed and explains how netting taxes hurt the hard-working middle class most. For households that aren’t in poverty and don’t receive social security, about 45 percent of all benefits are returned as taxes. For those in poverty, only about 3 percent of benefits are returned. 

Given the interrelated nature of taxes and transfers, policymakers should reform both systems together. Lawmakers could reduce both taxes and benefits to the same households without costing them anything. Such reductions would benefit both families and the government by increasing options and reducing waste—and would mean Americans could stop chasing after money they’ve already earned. 

Click here to view the full report.