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U.S. tax-and-transfer policies refer to the combined system of:
- Taxes — the money the government collects (mainly from individuals and businesses), and
- Transfers — the money or benefits the government gives to people, especially those in need.
Together, these policies aim to fund public services and reduce inequality.
🔹
Taxes
include:
- Income taxes (federal and state)
- Payroll taxes (Social Security, Medicare)
- Corporate taxes
- Capital gains taxes
- Estate taxes
- Sales and excise taxes
🔹
Transfers
include:
- Social Security (retirement income)
- Medicare and Medicaid (health coverage)
- SNAP (food stamps)
- Unemployment insurance
- Child tax credits
- Housing assistance
- Earned Income Tax Credit (EITC)
🔹 Purpose and Impact
The U.S. tax-and-transfer system has two main goals:
- Raise revenue for essential services (defense, education, infrastructure, etc.)
- Redistribute income to reduce inequality and poverty
For example, without transfers, the poverty rate in the U.S. would be far higher. In 2019, taxes and transfers reduced the official poverty rate by about 12 percentage points, according to the Congressional Budget Office.
🔹 Progressive or Regressive?
- Federal income taxes are progressive — higher earners pay a higher rate.
- Payroll and sales taxes are regressive — lower-income people pay a larger share of their income.
- Transfers are usually progressive — they mostly go to lower- and middle-income households.
🔹 Key Reference:
- Congressional Budget Office (CBO): The Distribution of Household Income
- Center on Budget and Policy Priorities: Policy Basics: Tax and Transfer System
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