Today is Tax Day. Federal tax returns are due to the Internal Revenue Service with a postmark before midnight. The Congressional Budget Office (CBO) projects that the federal government will collect $3.2 trillion in revenue this year.
Revenue comes from five main sources:
- Individual Income Taxes ($1.5 trillion). The largest source of federal revenues, individual income taxes are imposed on labor and capital income, with statutory rates that vary from 10 to 39.6 percent.
- Payroll Taxes ($1.1 trillion). These taxes finance Social Security and Medicare. Employees and employers split the 15.3 percent tax assessed on wages, but economists agree that the entire burden ultimately lands on workers in the form of lower wages.
- Corporate Income Taxes ($328 billion). These taxes are assessed on the worldwide earnings of corporations.
- Excise Taxes ($96 billion). Excise taxes are consumption taxes on specific goods. At the federal level, excise taxes are charged on such things as gasoline and tanning salons.
- Other ($206 billion). This category includes the remaining sources of federal revenue like federal tariffs and the death tax.
The amount of money collected by the federal government ebbs and flows depending on economic growth, but the overall trend is upwards. Federal revenue decreased in 2008 and 2009 due to the Great Recession, but has since rebounded strongly for two reasons. First, the return of economic growth increases revenue collection. Second, the federal government has passed several large tax increases since 2010. In 2015, the federal government will collect the largest amount of revenue in its history, even after adjusting for inflation.
Read the rest of this post →