How the Budget Is Funded:
All the Tax Burden Really Falls on You:
The individual taxpayer -- you -- provides most of the income for the Federal Government’s budget. That's because income taxes contribute 46.8%, or $1.359 trillion, toward total FY 2013 revenue receipts. Social Security, Medicare and other payroll taxes (still mostly you) add 33%, or $959 billion. Corporate taxes toss in $348 billion, or 12% toward the total. Excise and estate taxes contribute $101 billion, or 3.5%.
The Federal Reserve, as the bank for Federal government agencies, pays interest on the billions of dollars in operating funds deposited by various Federal agencies. This totals $80 billion, or 2.8%. The rest ($55 billion) comes from custom duties and other miscellaneous receipts. (Source: OMB Summary Tables, Table S-5)
The Congressional Budget Office (CBO) points out that, in effect, the entire U.S. tax burden really falls on individuals. That's because corporations pass on their tax burden to families in the form of higher prices or lower wages. Corporations must maintain their profit margin to satisfy stockholders, so any additional corporate taxes will be passed on to consumers or workers. Bottom line -- everything the government spends ultimately comes out of your pocket, no matter what happens with the corporate tax rate.
The Budget's Relation to Economic Growth:
Income taxes were lowered to spur the consumer spending that drives 70% of economic growth. Most people didn't even realize taxes were lowered, since the tax cut showed up as lower withholding instead of a check. However, this didn't stimulate economic growth as much as was hoped. Instead of spending all the extra cash, people used some of it to pay off debt. The recession scared people into saving more and using credit cards less.
Do Tax Cuts Boost Economic Growth?:
Left unchecked, the Federal debt would eventually slow the economy. If the debt-to-GDP ratio is too high (near 90%), it's perceived as a tax increase on future generations, who ultimately must pay it off. (Source: U.S. Treasury Department, A Dynamic Analysis of Permanent Extension of President's Tax Relief, July 25, 2006)
Effect of the Bush Tax Cuts:
The Tax Increase Prevention and Reconciliation Act of 2005 extended lower tax rates for long-term capital gains and dividends through 2010. This did not significantly impact government income, and the percentage to GDP returned to 18% by 2006.
Can Tax Cuts Increase Federal Budget Revenue?:
History of Federal Budget Income Since 2006:
- Current Federal Budget -- Projected to come in at $2.902 trillion.
- FY 2012 -- $2.469 trillion.
- FY 2011 -- $2.303 trillion.
- FY 2010 -- $2.165 trillion.
- FY 2009 -- $2.1 trillion.
- FY 2008 -- $2.524 trillion.
- FY 2007 -- $2.568 trillion.
- FY 2006 -- $2.407 trillion.


