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  • Chart of the Week: Where Does the Federal Government Get Its Revenue?

    President Obama and Republicans in Congress continue to wage war over an extension of the payroll tax cut. But missing from the debate is any discussion of comprehensive tax reform that would eliminate payroll taxes altogether.

    Social Security and Medicare payroll taxes are the second-largest source of federal revenue, surpassed only by personal income taxes. This week’s chart from Heritage’s 2011 Budget Chart Book depicts federal revenue by source.

    That chart would look quite different if Heritage’s tax-reform plan were enacted into law. That plan, part of the Saving the American Dream proposal, prescribes a single, low rate for individuals, replacing all federal income taxes, payroll taxes, the death tax, and most excises.

    The business tax code will also be replaced by a new flat business tax, thereby giving all businesses equal treatment and providing the framework for them to compete better in global markets.

    This simplified system enables taxpayers to anticipate their tax burden and plan accordingly. The Heritage tax plan encourages economic growth through a lower rate and by removing multiple taxation on the same income. Because the plan taxes income spent on consumption, it eliminates the disincentives families currently face to build savings. Enacting the plan would result in greater economic freedom and opportunity, and it would encourage Americans to be proactive in building financial security for themselves and their families.

    Posted in Featured, Scribe [slideshow_deploy]

    20 Responses to Chart of the Week: Where Does the Federal Government Get Its Revenue?

    1. JAY says:

      Where does the federal government get the largest block of its money? They borrow it.

    2. Grenadier says:

      A chart comparing the existing revenue the proposed revenue plan, with all assumptions noted, would be helpful.

    3. Jason122 says:

      The chart says that "most federal revenues come from individuals." Unfortunately that is not correct; in fact ALL federal revenues come from individuals. Corporations don't pay taxes; it is a cost of doing business that is passed on to the consumer in the price of the product or service.

      • Leon Lundquist says:

        Right On Jason! This is one of those screamingly obvious things than doesn't get much press. Nowadays the poor are not credited with those payments you spotlight on the Corporate side. Taxes passed through to the Consumers are often regressive, like alcohol, tobacco and penalties, they take unbelievable percentages of poor people's money (having so little to begin with.) Thanks for your comment.

        • mariden says:

          I guess the "poor" (who garner an excessive amount of money from welfare/medicaid/housing/child aid, etc) will have to give up alcohol, tobacco and not get penalized so often. Many of the "poor" are dependent, expectant whiners. I am fed up with paying my taxes for them.

          • jamie says:

            what is your definition of poor, because i am poor and work 3 jobs and have never had welfare, medicaid, or any other type of assistant….you think just b/c you have more money that you are the only one putting money in the pool…since 1980 the cost of living has almost tripled,,,but the income for middle income has only increased by 11% while income for top 5% has increased by 42% that is a huge gap there…last year the bottom 60% saw their income fall while ppl that make over 100k enjoyed a raise in income….ppl are struggling just to keep the light on and have a roof over their head and your complaining b/c they are poor?

    4. Jeff, Illinois says:

      I don't understand why the issue of General Tax Reform should be a part of the discussion about renewing the payroll tax, up for a vote at the present time. Both parties seemingly know well that General Tax Reform is a massive undertaking. It seems to me that that broader topic is a distraction from the present issue. I think the right thing to do is simply pass the payroll tax break for the immediate, paying for it the way it always has been, and get back to broader issues, like rebuilding the country's infrastructure. Then I think we should be looking at the Trade Inbalance and the issue of sending our typically middle class / working class jobs overseas where workers there are essentially exploited. This I believe is a root problem of our economy. We need a national manufacturing strategy that other countries like Germany have, with tariffs of some kind to keep our products from being undercut. A strong economically healthy middle class is key to our nation.

    5. West Texan says:

      The HF plan says " … by removing multiple taxation on the same income. Because the plan taxes income spent on consumption …".

      Does the HF plan eliminate all personal income and payroll taxes? If so, HF's proposal is promising. Be careful, however, as states like Texas depend on a sales tax. What percentage of each Texan's spent dollar would go toward taxes? A side benefit might be a political move back to federalism wherein states would assume any and all entitlement concerns. It'd be up to each state and their local communities how to arrange and meet residents' personal needs. National security is best handled at the federal level. Domestic programs are not. I'm convinced our founders on both sides of the constitutional debates would have totally agreed.

    6. PROGRESSIVE FLAT TAX
      burn tax book start anew
      this gets additional 2000B + in revenue and will balance our annual books
      It will assist in reducing debt as we cut spending in Defense-Social Security-Medicare-Medicaid.
      The remaining 20% yes cut it but first top down cuts

      Best effort for our peace of mind
      Fund Election–six month cycle not two years.
      3 for primary 3 for general
      free equal tv time
      one debate a week. It is enough to evaluate candidates
      No outside money 0=O

    7. Leon Lundquist says:

      I'm looking for a cure that does not include Income Tax. See? Income Tax is vanishing Capital, takes it before it can work in an Economy. Any tax on Income is 'funny money.' I love Heritage Foundation but if we propose any tax on Income it is self condemnation by small wishes. We need absolutely Fair Tax, everybody pays, no exceptions. Then, when taxes are too high Everyone will know it and vote it down.

    8. Lee Burns says:

      To Jeff: Do your homework, Jeff. Assume a typical non-union annual salary of an employee in the private sector of $40,000.00. ($19.23 per hr.) Overhead (additional expense to employer of roughly 40%) which includes FICA, S.S., unemployment ins., Med/Dent., retirement, brings that employee expense to $56,000.00 or ($26.92 per hour). Now assume a typical Union wage ( small business construction trade) of
      $35.00 per hour (equip. operator), plus 40% overhead of $14.00. ($14.00) for a minimum of $49.00 per hour annualized at $101,920.00. How much do you think your athletic shoes would cost you if they were manufactured in Manhattan or Chicago? Of course these wages create a certain standard of living in our country. Would you rather be in India or Bangladesh? There is a reason the jobs are going overseas.

      • Jeff, Illinois says:

        You miss the point entirely! Inevitably if getting products made cheaply trumps living wages and environmental working conditions, the middle class is doomed in America. The problem is not our wages and benefits, but rather that third world countries are ready and willing to "exploit" their workforce. Thus, in the past America had a tariff structure, which kept products made elsewhere from undercutting our own. You are the one who needs to do some more homework. Your point is an obvious myopic one, that's well been understood. All or your math is a smokescreeen when you look at the problem from the perspective of the American middle class and ask the question is America simply going to be a rental space for transnational corporations or do they have any loyalty to our own nation. Sadly the answer is profit is more important to most. Thus we have CEO salaries booming while working class wages stagnate. Then we have lobbyists that manipulate the system to gain additional imbalance. And that's where the 99% movements comes in.

      • Bobbie says:

        good point, Mr. Burns. In America and reality the income inequality is government union overpaid employees vs private sector paying what it can afford which gives us two unequal standards of living for equal jobs. unfair when government has authority over the other while government is paid through the private sector, all costs of government services regardless of (those tax exempt) benefit even though it is proven to be better handled in the private sector where there's accountability and who's expense is rightfully only to those involved and by choice. massive income and benefits inequality between non generated tax paid income of government employees wage and revenue generated income from the private sector forced by unconstitutional government, to pay for competition between government and themselves? government continues to obstruct economic freedom. How deceitful and ungracious can those running the government get? forget that question…

    9. Mike says:

      Out of curiosity, I wonder what you all think about having zero corporate tax. Absolutely none. I see this having a reduction of current consumer product prices; gets rid of corporate money in politics (lobbying); levels the business sector so large and small businesses are the same; brings in billions (trillion) of dollars in off shore holding; immediately stimulates the economy; and creates millions of new jobs. With all the newly employed, that creates more individual taxes which takes the place of the lost corporate taxes. Thoughts?

      • Bobbie says:

        I like it Mike! just because it's deemed by government as "corporate tax" satisfies only those challenged by common sense the rest of us that know (both government and common sense consumers) that corporations increase costs to the consumer to pay for the so called "corporate tax." Without private sector corporate tax, It would actually decrease costs and increase honest competition.

        The government certainly isn't on the people's side when they intentionally misguide the public by pretending increases to corporate taxes are coming out of their profit when technically increasing their profit by increase costs on the consumer.

      • the sad serf says:

        Mike,
        You might be on to something. I don't think your solution, if enacted, could mess us up any more than we already are so why not try it?!

      • Jeff says:

        Unfortunately, you haven't taken into account the greed engendered by corporations during times of high-inflation. We, the consumers, have been forced to pay higher and higher prices for everything from a gallon of gas to a gallon of milk. Corporations WILL NOT lower prices more than a marginal amount (akin to a sale price) for consumer goods that are suddenly costing THEM less to produce and sell. It would just mean more profit for THEM… and prices would continue to rise, though likely at a slower rate. View this historically… when more taxes were paid by companies than by individuals in this country, we were one of the most powerful economic forces on the planet. Every other currency was compared to the US dollar. We were the wealthiest nation on the face of the earth. Now, with taxes on individuals being higher than taxes on companies, we have on of the largest national debts in the world, and a government that cannot balance, nor live within, a budget. No, sir. Respectfully, only a flat tax (wherein all entities pay their share) and an overhaul of federal spending can resolve our current economic woes. This is just my opinion, mind you. Try this, though. A 25% flat tax on companies and a 15% flat tax on individuals, couples with very high tariffs on goods manufactured outside the US. With the tariffs, foreign-made goods become to expensive to sell in this country, returning innumerable manufacturing jobs. Every company and individual shares equally in the cost of operating this nation, the lobbyists lose influence, and the politicians are forced to adjust their spending. What do you think?

    10. jerika says:

      it gets most o fits money from federal taxes…

    11. Ian says:

      most of it comes from ind and payroll taxes (a little over 80%), Corp taxes are low, like 8%. Then there is the black funds money and printed money that you never hear about. The US government also makes money selling weapons and drugs. If you dont believe that you need to wake the freak up.

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