A new Congressional Budget Office analysis shows that government transfer payments to the lowest-earning households have grown sharply since 1979, reaching about $20,000 per household by 2023 — roughly 70 percent of their average cash income of about $28,500.
The CBO report tracks income and transfer payments for American households from 1979 through 2023, comparing income before and after government transfers. Income for the top-earning 20 percent of households grew steadily across the entire period. But once transfer payments are included, income for the bottom 20 percent grew faster than income for the middle three quintiles — the group typically described as the middle class.
CBO attributes most of that growth to two sources: Medicaid and payments delivered through the tax code.
Medicaid’s Growing Share
According to the report, “from 1979 to 2023, means-tested transfer rates more than doubled among households in the lowest quintile as both the number of people receiving benefits and the average benefit amount per recipient increased.” Medicaid spending alone grew from 9 percent of low-income households’ pre-tax, pre-transfer income in 1979 to 48 percent in 2023.
CBO also noted that pandemic-era rules barring states from disenrolling Medicaid beneficiaries expired in 2023, which put downward pressure on both Medicaid and SNAP benefit levels that year. Had those pandemic provisions still been in effect, Medicaid’s share of low-income households’ income would have been even higher.
Tax Credits and Falling Tax Burdens
The other major driver is tax-code subsidies, including the Earned Income Tax Credit, the child tax credit, and Affordable Care Act exchange subsidies. All three are refundable to varying degrees, meaning recipients can collect payments even if they owe no income tax.
In 1979, households in the lowest income quintile paid an average federal tax rate — combining income and payroll taxes — of roughly 8 to 10 percent. By 2023, that burden had all but disappeared. CBO’s data show the average income tax rate for the lowest quintile fell from roughly 0 percent in 1979 to -11 percent in 2023, meaning the average household in that group received a net payment from the federal government equal to more than one-tenth of its income. That payment nearly offset the payroll taxes those households paid, leaving the bottom fifth of earners contributing almost nothing to federal revenue on net in 2023.
CBO noted that the 2023 decline in the tax rate paid by the lowest quintile was driven partly by the unwinding of pandemic-era Medicaid rules, which shifted some beneficiaries from Medicaid onto subsidized ACA exchange plans.
What It Means
The figures put a specific scale on a trend that has unfolded over more than four decades: a substantial expansion in direct federal support, administered through both spending programs and the tax code, to the lowest-earning households, even as the federal tax burden on that group has effectively vanished.
The data raise a straightforward fiscal question for policymakers of any party: as transfer programs continue to expand, what share of the population can realistically remain outside the federal tax base while continuing to receive growing benefits funded by everyone else?
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