The Unabridged And Illustrated Federal Budget For Dummies - Part 2: Revenues

Tyler Durden's picture

In this second part of the four-part series describing the state of the Federal Budget, we present 10 charts courtesy of The Heritage Foundation on Federal Revenues. America’s growing tax burden is a drag on the economy and will reach record levels without policy changes.

Taxes per Household Have Risen Dramatically

Though the economic downturn has temporarily lowered overall tax revenues, the tax burden on Americans is still high.


Top 10 Percent of Earners Paid 71 Percent of Federal Income Taxes

Top earners are the target for new tax increases, but the federal income tax system is already highly progressive. The top 10 percent of income earners paid 71 percent of all federal income taxes in 2009 though they earned 43 percent of all income. The bottom 50 percent paid 2 percent of income taxes but earned 13 percent of total income. About half of tax filers paid no federal income tax at all.


Federal Revenues by Source

Most federal revenues come from individual taxpayers. Personal income taxes are the largest portion of total tax revenues. Social Security and Medicare payroll taxes are the second-largest source.


U.S. Has the Highest Corporate Tax Rate

High federal and state corporate tax rates make it difficult for U.S. headquartered businesses to compete internationally. U.S. rates have been consistently higher than the average of industrialized nations. In April 2012, Japan reduced its corporate tax rate to 36.8 percent, making the U.S. total corporate tax rate the highest.


Obamacare's Barrage of Tax Hikes

Obamacare imposes numerous tax hikes which total more than $500 billion over 10 years. Obamacare's higher tax rates on income and investment will slow economic growth, leaving hardworking American families and businesses worse off. A particularly harmful new payroll tax on investment income goes into effect in January 2013.


Obama's Budget Hikes Taxes by $2 Trillion

President Obama's FY 2013 budget includes about $1.5 trillion in tax hikes. Other proposals bring the true size of Obama's tax hikes to over $2 trillion. This includes letting the Bush tax cuts expire for high-income earners and small businesses and imposing additional taxes on these groups. Obama also proposes a higher death tax and the institution of new taxes, such as the punitive bank tax.


Taxes Soaring Past Highest Level Ever

Taxes are projected to increase rapidly under different policy scenarios. If the 2001 and 2003 tax cuts expire and more middle-income Americans are required to pay the alternative minimum tax (AMT), taxes will reach unprecedented levels. The tax burden will climb even if those tax breaks are extended. President Obama's budget, which cuts some taxes and raises others, increases the overall tax burden.


Increasing Tax Rates Does Not Necessarily Lead to Higher Income Tax Receipts

Tax cuts can create incentives for individuals to work, save, and invest, which can generate more revenue. The most dramatic decline in the top individual income tax rate, from 70 percent to 28 percent, occurred during the Reagan Administration, during which tax receipts remained relatively constant as a share of the economy.


Tax Revenues Return to Historical Average

Since World War II, tax receipts have averaged around 18.1 percent of GDP. Receipts have fallen due to the recession, but as the economy recovers, they will rise above the historical average level by the end of the decade, even if all the 2001 and 2003 tax cuts are made permanent.


Heritage's New Flat Tax Simplifies the Tax System

The Heritage Foundation's New Flat Tax (NFT), part of Saving the American Dream, replaces today's complex tax system with one that is simple and fair. The New Flat Tax would help more Americans save and invest, and it would encourage economic growth without raising taxes.


Source: The Heritage Foundation

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JustObserving's picture

"U.S. Has the Highest Corporate Tax Rate"

Just propaganda for dummies from  the Heritage Foundation:

"Apple paid a top tax rate of just 9.8 percent in 2011, the report says. Google paid a rate of 11.9 percent, while Yahoo paid 11.6 percent and Microsoft paid 18.9 percent. Xerox paid 7.3 percent of its income in taxes, while Amazon paid only 3.5 percent, according to the report."


GE Filed 57,000-Page Tax Return, Paid No Taxes on $14 Billion in Profits


hellas4life's picture

Absolutely right. Heritage is garbage

In recent decades, and especially since the start of the 1980s, corporate profits have increased as a share of GDP — but corporate tax revenues have not followed suit. The non-partisan Congressional Research Service (CRS) recently summarized the upshot of this trend: "Despite concerns expressed about the size of the corporate tax rate, current corporate taxes are extremely low by historical standards, whether measured as a share of output [i.e., GDP] or based on the effective tax rate on income."[1]

Between 2000 and 2005, the share of corporate operating surplus[2] that U.S. corporations pay in taxes — a proxy for the average tax rate — was the second lowest among the studied G7 leading industrialized nations and nearly 3 percentage points below the average of member nations in the Organisation for Economic Co-operation and Development (OECD), according to a 2007 Treasury Department report (see Figure 2, next page).[3] As that report summarized, "The contrast between [the United States'] high statutory corporate income tax rate and low average corporate tax rate implies a relatively narrow corporate tax base, due to accelerated depreciation allowances, corporate tax preferences, and tax-planning incentives created by [the] high statutory rate."

FrankThinkTank's picture


Please explain how  having a high tax rate wouldn't send money to overseas accountants for laundering?

I'm no Heritage fan but your argument is retarded.

"...reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies." 

Tax revenue can't save us anyway. CTRL-P.

Matt's picture

Aren't taxes on corporations a double tax anyways, since the profits are taxed as capital gains for shareholders? Wouldn't it make more sense to only have capital gains for distributions or profits from selling shares, and get rid of corporate taxes altogether?

This would get rid of the double-taxation and reduce or eliminate all this offshore tax haven nonsense, and allow companies to repatriate their overseas profits.

Their New Flat Tax makes sense; I would start it higher and lower it at intervals based on milestones, i.e. 40 percent until debt-to-GDP is under 80 percent, then 30 percent until under 60 percent, then 25 percent after that.

hellas4life's picture

The real picture
Military closer to 50% of spending

The events and policies that pushed these deficits to high levels in the near term were, for the most part, not of President Obama’s making. If not for the Bush tax cuts, the deficit-financed wars in Iraq and Afghanistan, and the effects of the worst recession since the Great Depression (including the cost of policymakers’ actions to combat it), we would not be facing these huge deficits in the near term. By themselves, in fact, the Bush tax cuts and the wars in Iraq and Afghanistan will account for almost half of the $20 trillion in debt that, under current policies, the nation will owe by 2019. The stimulus law and financial rescues will account for less than 10 percent of the debt at that time.

A recent Heritage Foundation report claims that tax cuts and other policies initiated during the Bush administration are not a significant factor behind the deficits we face in the coming decade.[10] Heritage places blame for the deficits squarely on rapid growth in Social Security, Medicare, Medicaid, and interest costs, and dismisses the significance of weak revenues in general and the 2001 and 2003 tax cuts in particular. But Heritage’s analysis is both misguided and seriously misleading.
Heritage ignores the fact that rapidly-rising interest costs — one of its “culprits” behind rising outlays — result in significant part from the tax cuts and other fiscal policies of the Bush era . The tax cuts and the wars in Iraq and Afghanistan accounted for over $2.6 trillion of our national debt by the end of 2008 and, if continued, will add another $7 trillion in debt by 2019. In that year alone, about $450 billion of our interest bill will stem from those two policies. It is disingenuous to tar interest as a “fast-growing” spending program while ignoring which policies — including tax cuts — account for that fact.

Heritage admits that it understates the cost of the tax cuts by omitting their impact on rising net interest costs. “On the other hand,” Heritage asserts, “the original CBO scores of tax cuts have been underestimates because they excluded all supply-side feedback effects and overestimated the GDP between 2008 and 2011, which made all revenue and tax cut projections appear larger.” That convenient justification, however, misses the boat. We know that the tax cuts led to higher borrowing and larger debt-service costs. We do not know that they led to extra economic activity (or that they would have a positive effect on economic activity if made permanent). In fact, analyses of so-called “dynamic scoring” of tax cuts have found that: 1) such estimates generally come close to the standard estimates;[11] 2) stimulative effects may appear strong in the short run but tend to dissipate over longer horizons; and 3) most importantly, as both CBO and the Joint Committee on Taxation have concluded, large tax cuts financed by borrowing can harm the economy over the long term rather than help it. [12] In short, there is no reason to ignore the enormous debt overhang that the Bush tax cuts caused and plenty of reason to be skeptical of their economic benefits. Including the interest costs, the Bush-era tax cuts account for over $700 billion — or nearly 55 percent — of the deficit projected for 2019 under current policies.
Heritage ignores the fact that the share of deficits accounted for by the Bush-era tax cuts will grow in future years as the impact of the economic downturn on deficits diminishes . Because the economic downturn and efforts to combat it have such a large effect on the deficit in 2010, the share of the deficit accounted for by the tax cuts seems relatively modest; we estimate that the tax cuts account for about one quarter of the 2010 deficit. But as the effects of the downturn recede, the tax cuts will account for a much larger share. In 2019, the tax cuts, if continued, will account for nearly three-fifths of the deficit. And, despite the growing impact of rising health care costs and the continued aging of the population after 2019, the tax cuts will continue to have a major impact on the deficit. The Center has estimated that not extending the tax cuts — or fully paying for the cost of extending them — would reduce the projected budget shortfall through 2050 by two-fifths. [13]
In constructing its baseline, Heritage partly assumes its own conclusion. The baseline projections developed by Heritage generally resemble CBPP’s, with one crucial difference. Heritage assumes that regular discretionary spending (other than war costs and stimulus funds) will grow at the same rate as the GDP over the next 10 years. In contrast, we assume that such appropriations will grow somewhat more slowly in the 10-year budget window because they will grow with inflation; this is the standard, widely accepted baseline assumption. Heritage’s decision to scrap normal baseline practices and assume higher levels of discretionary spending boosts such spending by more than a full percentage point of GDP by the end of the ten-year period and adds to interest costs as well. Heritage then uses this increased spending it assumes to buttress its claim that it is excessive spending growth that causes the deficit. In theory, policymakers might choose to increase discretionary spending to keep pace with GDP, but that is highly unlikely in these straitened times. And that is not how the Budget Enforcement Act, CBO, and the Office of Management and Budget define “current policy” when they make their baseline budget projections for the coming decade. [14]
It was not a sudden spurt of growth in Social Security, Medicare, and Medicaid that turned projected budget surpluses into deficits . CBO and many budget analysts have long pointed out that the “big three” entitlement programs will swell in future decades as a result of an aging population and steady growth in per-capita health-care costs.[15] Indeed, CBO had already projected that this would eventually occur when, in 2001, it projected significant budget surpluses through 2011 and years beyond . [16] Since the growth in these large programs was anticipated (other than the growth due to enactment of the Medicare prescription drug benefit), it is not what turned projected surpluses to deficits.

Oldwood's picture

Who pays the corporation's taxes? Have tax revenues decreased faster than government spending has increased? For those corporations that have seen their tax bills decrease, how many are due to special deals given by government and accounting tricks that allow them to move expenses forward to reduce taxable income. Any idea how many small, politically dissadvantaged corporations or ones not favored by government pay the full going rate? And are you really going to suggest that our economic problems are due to not taxing enough? Taxation is simply a tool for social engineering and political paybacks. Obama has proven that direct taxation is not needed as we can simply print and inflate government expenditures.

The Alarmist's picture

It's the spending, stupid!

ACP's picture

There's a budget?

James_Cole's picture

One of the few sensible things Dr. Paul said in his "debate" with Krugman was Americans may as well stop working and just have the fed print money. He wasn't serious, but he may as well of been. That's how America is to a large extent. The idea that the US can "cut spending" is totally absurd - where do you think that spending winds up? Who is the real welfare state?

The government spending is merely a way to prop up bloated, heavily in debt corporations of all different stripes, get rid of the spending (whether on food stamps or military) and you realize there's no there there. It's highly unlikely many American corporations could exist without their huge subsidies, America (as a corportist state) would fall apart. Likewise many Americans would be done for without their credit / debt.

Debate over taxes is another joke, as if any set of tax rates could fix the problem of trillions in budget deficits and unfunded liabilities.

As long as the military is strong, the banks are well bailed and the fed can print money infinitely the USA is strong.

Take any of those away and what do you have left? Mostly a bunch of broke, poorly educated, obese people.

Stuck on Zero's picture

Everyone says there's a huge growth in Medicare costs.  Why?  Every examine a hospital bill?  $39 for an aspirin.  $46 for a bandage.  $15K a day for a bed with a few monitors.  $560 for a little inflatable pad.  Medicare costs are soaring because fools pay these outrageous bills.  And don't forget, the top 1% in the United States is mostly people in the medical profession i.e. glorified pill pushers and saw bones.

Matt's picture

Wage and Price controls for Medicare?

lolmao500's picture

Most of this is garbage. And you know why? Because it's based on bogus CBO estimates.

Anything they put out are total lies and won't even be close to reality.

nmewn's picture


"The top 10 percent of income earners paid 71 percent of all federal income taxes in 2009 though they earned 43 percent of all income. The bottom 50 percent paid 2 percent of income taxes but earned 13 percent of total income. About half of tax filers paid no federal income tax at all."

And yet, they use the roads, the bridges, the "vital infrastructure" to conduct "untaxed commerce"?...oh my.

One has to now assume they never set foot outside their subsidized home or else they would be on the roads, bridges and "vital infrastructure" that my grandchildren (yet to be born) just got fucking hammered for a trillion Hopium bucks to provide.

Matt's picture

Gas (Road) Taxes should be paying for the contruction and maintenance of the infrastructure. If the revenues are insufficient, than higher gas taxes are needed. If there is a surplus, instead of going to general revenue, the gas tax rate should come down.

People who use electric cars should have a seperate meter for charging the car, and have the Road Tax applied to the electricity used for charging the car.

Income Tax should not be going to pay for roads and bridges.

Evolutionary Outrage's picture

Altria, Chevron, Exxon, Pfizer, Microsoft, Boeing, the Koch brothers, Joseph Coors.  Heritage claims these types of donors only provide 4% of their funding but they still have an outsized effect on what comes out of Heritage's 'impartial' research.  What do we think they are going to say?

earleflorida's picture

The Heritage Found`datum by Sir Caveat`de Emptor is but a cataract away from blindness,... caution!

kralizec's picture

But Lord High Obama, current Grand Poohbah of the Democrat-Media Complex says taxing the shit out of the rich will solve all revenue and deficit woes.

The Grand Poohbah of the Democrat-Media Complex would never lie to us.


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