TOTAL REVENUES
The federal government collected revenues of $3.5 trillion in 2019—equal to about 16.3 percent of gross domestic product (GDP) (figure 2). Over the past 50 years, federal revenue has averaged 17.4 percent of GDP, ranging from 20.0 percent (in 2000) to 14.6 percent (most recently in 2009 and 2010).
INDIVIDUAL INCOME TAX
The individual income tax has been the largest single source of federal revenue since 1950, amounting to about 50 percent of the total and 8.1 percent of GDP in 2019 (figure 3). In recent years, individual income tax revenue has climbed as high as 9.9 percent of GDP (in 2000) at the peak of the 1990s economic boom and dropped as low as 6.1 percent (in 2010) following the 2007–2009 Great Recession.
CORPORATE INCOME TAX
The tax on corporate profits yielded 7 percent of government revenue in 2019, a revenue source that has been trending downward. Revenue from the tax has fallen from an average of 3.7 percent of GDP in the late 1960s to an average of just 1.4 percent of GDP over the past five years, and 1.1 percent of GDP most recently in 2019 (figure 3).
SOCIAL INSURANCE (PAYROLL) TAXES
The payroll taxes on wages and earnings that fund Social Security and the hospital insurance portion of Medicare make up the largest portion of social insurance receipts. Other sources include payroll taxes for the railroad retirement system and the unemployment insurance program, and federal workers’ pension contributions. In total, social insurance levies were 36 percent of federal revenue in 2019.
The creation of the Medicare program in 1965, combined with periodic increases in Social Security payroll taxes, caused social insurance receipts to grow from 1.6 percent of GDP in 1950 to 6.2 percent in 2009 (figure 3). A temporary reduction in employees’ share of Social Security taxes—part of the stimulus program following the financial meltdown—reduced social insurance receipts to 5.3 percent of GDP in 2011 and 2012. Social Insurance tax receipts have since climbed back to 5.9 percent of GDP in 2019.
FEDERAL EXCISE TAXES
Taxes on purchases of goods and services, including gasoline, cigarettes, alcoholic beverages, and airline travel, generated 2.9 percent of federal revenue in 2019. But these taxes, too, are on the wane: excise tax revenues have fallen steadily from an average of 1.7 percent of GDP in the late 1960s to an average of 0.5 percent over 2015 to 2019 (figure 3).
OTHER REVENUES
The federal government also collects revenue from estate and gift taxes, customs duties, earnings from the Federal Reserve System, and various fees and charges. In total, these sources generated 5.0 percent of federal revenue in 2019. They have ranged between 0.6 and 1.0 percent of GDP since 1965 (figure 3). In recent years, the figure has been on the high end of that range because of unusually high profits of the Federal Reserve Board related to its efforts to stimulate the economy since 2008.
SHARES OF TOTAL REVENUE
The individual income tax has provided nearly half of total federal revenue since 1950, while other revenue sources have waxed and waned (figure 4). Excise taxes brought in 19 percent of total revenue in 1950, but only about 3 percent in recent years. The share of revenue coming from the corporate income tax dropped from about one-third of the total in the early 1950s to 7 percent in 2019. In contrast, payroll taxes provided more than one-third of revenue in 2019, more than three times the share in the early 1950s.
Updated May 2020
As an expert in economics and government finance, I bring a wealth of knowledge and experience to the discussion of federal revenues in the United States. With a keen understanding of economic trends and government fiscal policies, I can dissect the intricate details of the revenue sources outlined in the provided article.
Firstly, let's delve into the comprehensive landscape of federal revenues. The figure of $3.5 trillion in 2019, constituting 16.3 percent of the gross domestic product (GDP), is a crucial metric that reflects the financial underpinning of the U.S. government. This figure is part of a broader historical context, where federal revenue has exhibited a consistent average of 17.4 percent of GDP over the past 50 years, reaching peaks such as 20.0 percent in 2000 and lows of 14.6 percent during the 2009-2010 period.
The individual income tax stands out as the cornerstone of federal revenue, representing approximately 50 percent of the total and 8.1 percent of GDP in 2019. This tax category's significance is emphasized by its historical fluctuations, ranging from a high of 9.9 percent of GDP in 2000 to a low of 6.1 percent in 2010, reflecting economic dynamics like the boom of the 1990s and the aftermath of the 2007–2009 Great Recession.
Turning our attention to the corporate income tax, it contributed 7 percent of government revenue in 2019, marking a downward trend. The decline is evident when comparing the average contribution of 3.7 percent of GDP in the late 1960s to the recent average of 1.4 percent and the 1.1 percent recorded in 2019.
Social insurance (payroll) taxes, funding programs like Social Security and Medicare, constitute a substantial portion of federal revenue, amounting to 36 percent in 2019. The growth in social insurance receipts, from 1.6 percent of GDP in 1950 to 6.2 percent in 2009, underscores the impact of policy changes such as the creation of the Medicare program in 1965.
Federal excise taxes, applied to purchases of goods and services, generated 2.9 percent of federal revenue in 2019. However, these taxes have seen a decline, with revenues falling from an average of 1.7 percent of GDP in the late 1960s to an average of 0.5 percent over the period from 2015 to 2019.
Lastly, other revenue sources, including estate and gift taxes, customs duties, Federal Reserve earnings, and various fees, contributed 5.0 percent to federal revenue in 2019. This category has exhibited stability, ranging between 0.6 and 1.0 percent of GDP since 1965, with recent increases attributed to the Federal Reserve Board's efforts to stimulate the economy since 2008.
In summary, the U.S. federal revenue landscape is a dynamic interplay of diverse sources, each with its historical trends and policy-driven variations. The intricate balance of individual income tax, corporate income tax, social insurance taxes, excise taxes, and other revenues paints a comprehensive picture of the financial engine that sustains the government's operations.
