US Federal Government Tax Revenue
Who Really Pays Uncle Sam's Bills?
U.S. federal tax revenue is the total tax receipts received by the federal government each year. Most of it is paid by you either through income taxes or payroll taxes.
The percentage breakout is income taxes at 50% and payroll taxes at 36%, for a total of 86%. Corporate taxes supply 7% while excise taxes and tariffs contribute 4%. Earnings from the Federal Reserve's holdings add 2% and the remaining 2% is from estate taxes and other miscellaneous fees.
The U.S. government's total revenue is estimated to be $3.643 trillion for Fiscal Year 2020. That's the most recent budget forecast from the Office of Management and Budget for October 1, 2019, through September 30, 2020.
So where does the federal government's revenue come from? Individual taxpayers like you provide most of it. Income taxes contribute $1.822 trillion, over half of the total. Another third, $1.295 trillion, comes from your payroll taxes. This includes $949 billion for Social Security, $289 billion for Medicare, and $46 billion for unemployment insurance.
The Federal Reserve contributes $49 billion. Its revenue comes from a variety of activities. For example, the Fed is the bank for federal government agencies. It pays interest on the billions of dollars in operating funds deposited by these agencies. In addition, the Fed owns $4 trillion in U.S. Treasury securities that it acquired through quantitative easing.
Why Changing the Corporate Tax Rate Doesn't Help You
Shouldn't corporations pay more? It might not matter. Corporations pass on their tax burden to you. They will either raise prices or reduce wages. They must maintain their profit margins at a certain level to satisfy stockholders.
If taxes are raised, they pass that on to consumers or workers to keep share prices high. It doesn't matter what happens with the corporate tax rate. There is no way around it. U.S. taxpayers will always have to pay taxes.
The best way to reduce the individual tax burden is to reduce government spending, not shift the burden to corporations.
How Revenue Relates to the Deficit, Debt, and GDP
The government's annual income only pays for 77% of spending. It creates a $1.1 trillion budget deficit.
Shouldn't Congress only spend what it earns, just like you and me? It depends on where the economy is in the business cycle. Congress should use deficit spending to boost economic growth in a recession. It uses stimulus spending to create jobs.
Once the recession is over, the government should live within its means and spend less. It should raise taxes, if needed, to reduce the deficit and the debt. That will keep the economy from overheating and forming dangerous bubbles. Congress should switch from expansionary to contractionary fiscal policy.
The revenue collected equals 16.3% of gross domestic product. That's the nation's measurement of economic output. That's like saying the average tax rate for the United States itself is 16.3%.
If that much production is going to the federal government, then you want to make sure it's reinvested into the economy to support future growth.
It's also much lower than the historical 19% target. But that's because President Donald Trump cut taxes. The OMB estimates GDP will increase by 3.1% in FY 2020. That's higher than the ideal growth rate.
Revenues would be much higher without the Trump tax plan. It was also lowered by the extension of the Bush tax cuts and the Obama tax cuts. They were meant to fight the 2001 recession and the 2008 recession. They were supposed to spur the consumer spending that drives almost 70% of economic growth.
But most people didn't even realize this happened since the tax cut showed up as reduced withholding instead of a check. Instead of spending the cuts, people used some of it to pay off debt. The recession scared people into saving more and using credit cards less. So, the budget didn't expand enough to spur economic growth.
Now that the recession is over, those tax cuts should be reversed. Taxes should be increased, not cut. An economic expansion is the time to pay off the debt, not add to it.
U.S. Tax Revenue by Year
Here's a record of income for each fiscal year since 1960. There are links to more details about the revenue back to the FY 2006 budget. Tax receipts fell off during the recession but started setting new records by FY 2013.
- FY 2020 - $3.64 trillion, budgeted.
- FY 2019 - $3.44 trillion, estimated.
- FY 2018 - $3.33 trillion.
- FY 2017 - $3.32 trillion.
- FY 2016 - $3.27 trillion.
- FY 2015 - $3.25 trillion.
- FY 2014 - $3.02 trillion.
- FY 2013 - $2.77 trillion.
- FY 2012 - $2.45 trillion.
- FY 2011 - $2.30 trillion.
- FY 2010 - $2.16 trillion.
- FY 2009 - $2.10 trillion.
- FY 2008 - $2.52 trillion.
- FY 2007 - $2.57 trillion.
- FY 2006 - $2.4 trillion.
- FY 2005 - $2.15 trillion.
- FY 2004 - $1.88 trillion.
- FY 2003 - $1.72 trillion.
- FY 2002 - $1.85 trillion.
- FY 2001 - $1.99 trillion.
- FY 2000 - $2.03 trillion.
- FY 1999 - $1.82 trillion.
- FY 1998 - $1.72 trillion.
- FY 1997 - $1.58 trillion.
- FY 1996 - $1.45 trillion.
- FY 1995 - $1.35 trillion.
- FY 1994 - $1.26 trillion.
- FY 1993 - $1.15 trillion.
- FY 1992 - $1.09 trillion.
- FY 1991 - $1.05 trillion.
- FY 1990 - $1.03 trillion.
- FY 1989 - $991 billion.
- FY 1988 - $909 billion.
- FY 1987 - $854 billion.
- FY 1986 - $769 billion.
- FY 1985 - $734 billion.
- FY 1984 - $666 billion.
- FY 1983 - $601 billion.
- FY 1982 - $618 billion.
- FY 1981 - $599 billion.
- FY 1980 - $517 billion.
- FY 1979 - $463 billion.
- FY 1978 - $399 billion.
- FY 1977 - $356 billion.
- FY 1976 - $298 billion.
- FY 1975 - $279 billion.
- FY 1974 - $263 billion.
- FY 1973 - $231 billion.
- FY 1972 - $207 billion.
- FY 1971 - $187 billion.
- FY 1970 - $193 billion.
- FY 1969 - $187 billion.
- FY 1968 - $153 billion.
- FY 1967 - $149 billion.
- FY 1966 - $131 billion.
- FY 1965 - $117 billion.
- FY 1964 - $113 billion.
- FY 1963 - $107 billion.
- FY 1962 - $100 billion.
- FY 1961 - $94 billion.
- FY 1960 - $93 billion.
- FY 1789-1959 - $1.1 trillion. (Source for 1789 - 2015: "Table 1.1—Summary of Receipts, Outlays, and Surpluses or Deficits (-): 1789–2018," OMB.)
The Bottom Line
The federal income tax is an annual levy by the IRS on earnings of individuals, corporations, trusts, and other legal organizations. Even the Federal Reserve pays taxes as it is a taxable entity.
The national government gets most of its revenue from federal income taxes. Income taxes and payroll taxes make up the bulk of federal income taxes. So, the federal government’s revenues are mostly derived from a portion of U.S. citizens’ earnings.
Despite federal tax revenues now running into the trillion dollar level, this income cannot cover the even bigger federal debt the government has accrued. Unfortunately, Trump’s tax plan, which cuts federal taxes, will lower government revenues. These have already decreased from previous tax cuts instituted by Presidents Bush and Obama. Federal government revenues are still expected to fall inadequately far from making a significant improvement towards paying off U.S. debt.
Understand the Current Federal Budget
WhiteHouse.gov. “A Budget For A Better America, Fiscal Year 2020, Budget Of The U.S. Government,” Accessed Nov. 9, 2019.
The White House, President Barack Obama, Office Of Management And Budget. “Historical Tables,” Accessed Nov. 9, 2019.