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

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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