Each year, the federal government hands approximately $10 billion over to the richest 1% of Americans — mainly to rich retirees — according to an IBD analysis of data on various federal transfer programs. And these payments are growing, adding to the income inequality that politicians like President Obama frequently complain about.
The bulk of the taxpayer money going to the richest 1% came from Social Security and Medicare, which provide benefits to retirees regardless of their income.
Using IRS data, IBD found that the top 1% of income earners claimed approximately $7 billion in Social Security benefits in 2009. That year, the program paid super-rich seniors — those with adjusted gross incomes exceeding $10 million — an average of $33,000 each.
Medicare, meanwhile, paid roughly $2.6 billion in health care subsidies for the richest 1% of enrollees, based on calculations using Medicare enrollment, overall Medicare spending and premium data. (Medicare does not track spending by enrollee income.) And if you consider that 5% of Medicare enrollees have more than $1 million in savings, the amount taxpayers spend to subsidize retiree health benefits skyrockets.
In addition, some studies have found that Medicare has "led to net transfers from the poor to the wealthy" — as a paper published by the National Bureau of Economic Research put it — because of how it's financed and because the rich tend to live longer than the poor.
The rich also get hundreds of millions of taxpayer dollars via a wide variety of other federal programs, including farm subsidies, unemployment insurance, conservation programs and disaster housing payments. The richest 1%, for example, claimed a total of about $400 million in jobless benefits in 2009. The reason for these billions in payments to the wealthy is that many federal transfer programs don't have income limits on benefits.
"This is not an accidental loophole in the law," Sen. Tom Coburn, R-Okla., noted. "To the contrary, this reverse Robin Hood-style of wealth distribution is an intentional effort to get all Americans bought into a system where everyone appears to benefit." In November, Coburn issued a report focused on federal subsidies going to millionaires.
In addition to direct payments, the top 1% claimed about $31 million in tax credits for buying electric cars, $469 million in home energy credits, and $111 million in child care credits, according to IBD's analysis of IRS tax return data.
What's worse is that this government transfer of wealth from working families to the rich has increased over the past three decades.
"Shifts in the distribution of government transfer payments (since 1979) contributed to the increase in after-tax income inequality," according to a recent study by the Congressional Budget Office. The rapid growth in Medicare, for example, "tended to shift more transfer income to middle- and upper-income households."
The CBO also found that while the poorest fifth of households got 54% of federal transfer payments in 1979, they received just 36% in 2007. Several political leaders and policy groups have proposed changes to reduce federal payments to the super rich.
House Majority Leader John Boehner, R-Ohio, for example, has proposed cutting Medicare subsidies to the wealthy to help pay for an extension of the payroll tax cut.
The conservative Heritage Foundation has put together "means testing" reforms for Medicare and Social Security as part of a broader deficit-cutting package, phasing out benefits as retiree income exceeds certain limits.
President Obama's bipartisan debt commission suggested slowing the growth of Social Security benefits for higher earners. Obama himself has claimed to support some form of means testing. "I have said that means-testing on Medicare," he told reporters in July, "would make a difference."
And Republican presidential candidate Mitt Romney, among others, promises to change Medicare to a defined contribution plan, which would give seniors a set amount of money toward health coverage, thereby reducing Medicare dollars going to the rich.
Ironically, it's Democrats — who decry income inequality the most — who tend to strongly oppose means-testing these programs. They fear that doing so would undermine public support for them.
When the Medicare drug benefit was being debated in 2003, for example, Rep. Nancy Pelosi, D-Calif., decried a Republican effort to means-test the benefit . "Democrats," she said, "stand united in our opposition to means testing."