April 20th, 2014
by Michael Haltman
What could be more appropriate on April 15, Tax Day, than examining which segment of the populace contributes the greatest portion of federal tax revenues?
As individuals and/or business owners who pay into the federal coffers, we often feel as if the entire tax burden is falling squarely on our shoulders and that it is we, and we alone, who are funding the federal government and all of its accumulated deficits.
The facts are somewhat different, however, as this description of the sources of funds and associated charts show.
Note: Knowing these facts will not make the pain of writing the checks any easier to take!
Almost half of all federal revenue (47 percent) comes from individual income taxes. The income tax is generally progressive: higher-income households pay a larger share of their income in income taxes than lower-income households do.
Another 34 percent of revenue comes from payroll taxes, which are assessed on the wage or salary paychecks of almost all workers and used to fund Social Security, Medicare Hospital Insurance, and unemployment insurance. By law, employers and employees split the cost of payroll taxes, but research has shown that employers pass their portion of the cost on to workers in the form of lower wages.
Payroll taxes as a whole are regressive: they collect a higher percentage of total earnings from lower-income workers than higher-income ones. However, if one looks at the overall impact of Social Security, Medicare, and unemployment insurance - the benefits they provide as well as the taxes they collect - these programs are progressive.
Corporate income taxes make up about 10 percent of federal revenue, with the remaining 9 percent coming from excise taxes, estate taxes, and other taxes. Excise taxes are collected on the sale of certain goods (e.g., fuel, alcohol, and tobacco); they are intended to raise revenue and, in some cases, discourage consumption of the taxed product. These made up about 3 percent of federal receipts in 2013. (Source)
An historical look back at federal tax revenue by source
Federal tax revenue by source in 2013