The federal government finances its operations with taxes, fees, and other receipts collected from many different sectors of the economy. In 2022, total federal receipts are projected to total about $4.8 trillion, or 19.6 percent of gross domestic product (GDP). The largest sources of revenues are individual income taxes and payroll taxes followed by corporate income taxes. Absent changes in tax laws, the total amount of revenues generally follows the path of the economy. Show TWEET THIS Sources of Federal Revenues
Understanding Who Pays Taxes and HowTo assess whether the tax system is fair or not, it is important to look at all of the taxes that people pay, not just one particular form of taxation. For example, while it is true that many people owe little or no individual federal income tax, there are many other kinds of taxes that apply to individuals. In fact, taxpayers whose incomes are in the bottom 90 percent of all incomes pay, on average, more in payroll taxes than in income taxes. At the other end of the spectrum, high-income Americans receive a significant amount of their income from capital gains and dividends, which are taxed at lower rates than wages and salaries. However, wealthier taxpayers also face higher tax rates on their other income and indirectly bear a greater share of the corporate income tax, which significantly raises their overall effective tax rates. On aggregate, our federal tax system is structured to be generally progressive, with higher-income taxpayers paying a larger share of their income in taxes. However, the composition of taxes paid is very different for taxpayers at different ends of the income distribution. For low-income Americans, payroll taxes and excise taxes are the major forms of taxation; for high-income Americans, individual and corporate income taxes comprise most of their tax burden. TWEET THIS Tax ExpendituresThe income tax code also contains provisions that allow individual and corporate taxpayers to reduce their tax bills. Such special provisions — deductions, exemptions, deferrals, exclusions, credits, and preferential rates — are known as tax expenditures. In 2021, tax expenditures totaled approximately $1.9 trillion. That amount equals nearly 90 percent of the revenues that the federal government actually collected in income taxes and exceeds what was spent by any single agency or spending program, including Social Security and the Department of Defense. TWEET THIS Tax expenditures work in various ways and take many forms, including:
Just eight tax expenditures amounted to $1.2 trillion in 2020 — more than half the cost of all such expenditures combined. Eight Popular Tax Provisions Account for a Large Majority of Annual Tax Expenditures
SOURCE: Office of Management and Budget, Tax Expenditures, Budget of the United States Government, Fiscal Year 2023, March 2022. TWEET THIS Tax expenditures are often referred to as "spending in disguise," because lawmakers use the tax code to direct subsidies to specific constituencies and activities. Policymakers also use tax expenditures to influence consumer and business behavior. The mortgage-interest deduction, for example, encourages taxpayers to buy homes instead of renting. Similarly, depreciation provisions for businesses encourage new purchases of equipment. In addition, because tax expenditures subsidize "favored" activities, they can distort economic decisions in ways that reduce the productivity of our economy. Tax expenditures generally receive less scrutiny than spending programs. Most do not need annual review and approval, and therefore often remain in place for many years. With few opportunities for review and consideration, they are harder to control and less transparent than line-item spending programs. Many tax expenditures are also more valuable for people at higher marginal tax rates, so the benefits of tax expenditures often skew toward those with higher incomes. What is the main source of income for the federal government?Individual income taxes are the largest single source of federal revenues, constituting about one-half of all receipts. As a percentage of GDP, individual income taxes have ranged from 6 to 10 percent over the past 50 years, averaging 8 percent of GDP.
What are the two main sources of income for the federal government quizlet?The two main sources of revenue for the federal government are personal income taxes and social insurance taxes. How does the government spend the nondefense discretionary part of the federal budget? The federal government spends its money on a wide variety of programs and services.
|