In 2010 the U.S. government took in $2.162 trillion in taxes, but spent $3.453 trillion on budget items. The national debt therefore increased and will continue to do so with every annual budget deficit.

TUTORIAL: Economic Indicators

But where does all this money come from? Who pays, and how much do they pay? The tax tables, published annually by the government's Internal Revenue Service, tells only part of the story. Additional taxes are levied on income derived from the sales of real estate and other personal property, from investments, from inheritances as required by the estate tax and from other sources as well.

The article below describes the many varieties of taxation imposed on U.S. citizens, and estimates either the percentage of the total amount of taxes paid or the dollar amount paid on each tax. (Find out why this particular piece of national financing gets so much attention from the media and investors, see Breaking Down The U.S. Budget Deficit.)

Projected income for tax year 2011 cites the following sources of revenue:

Source Revenue (trillion)
Income Taxes $1.5
Social Insurance Taxes $0.9
Fees and Charges $0.4
Business and Other Revenue $0.6
Ad Valorem Taxes $1.1
Total Direct Revenue $4.5
Source: www.usgovernmentrevenue.com

Ad valorem taxes are calculated on the assessed value of real estate and/or personal property. Although ad valorem or property taxes provide a large percentage of state and city revenue, the federal government also collects revenue from ad valorem taxation sources.

Before reporting on who pays taxes and how much, let's take a look at who doesn't pay taxes.

Some 45% of American households, about 69 million are not liable for federal income taxes, according to an estimate from the non-partisan Tax Policy Center. Tax cuts, credits and exemptions have helped eliminate the tax obligation of this large group, most of which earn less than $50,000 annually. About 49 million of these households pay a payroll tax, however, which helps fund Social Security and Medicare. (Learn more in Introduction To Social Security.)

The so-called Bush tax cuts, and tax reductions enacted during the Obama administration have also eliminated the tax liability for many additional individuals and households.

A large number of other individuals pay no taxes because of exemptions, incentives, exclusions, off-shore enterprises and other loopholes in the U.S. tax code, an immensely complex set of rules, several thousand pages long which often baffles the most knowledgeable of tax accountants.

American corporations with operations in foreign countries, or with legal headquarters in off-shore tax havens, also pay no taxes on revenues derived from these situations.

The top U.S. corporate tax rate is 35%, one of the highest rates in the world. But major corporations seldom pay the top rate because of various tax breaks and loopholes which include incentives, deferments and exclusions. Certain accounting methods, many of which are open to interpretation and challenge by tax courts, also help reduce corporate tax liability. (These tax-free zones might sound appealing, but the consequences often aren't, check out Taking A Look At Tax Havens.)

So the bulk of the U.S. tax burden is carried by only about half of the nation's households and taxpayers.

According to statistics provided by the Internal Revenue Service, U.S. taxpayers paid at the following rate in 2008, the most recent year for which comprehensive figures are available. The data was updated in 2010.

The top 1%, ranked by adjusted gross income of at least $380,354, paid 38.02% of federal personal income taxes.

The top 5%, ranked by adjusted gross income of at least $159,619, paid 58.72% of federal income taxes.

The top 10%, ranked by adjusted gross income of at least $113,799, paid 69.94% of federal income taxes.

The top 25%, ranked by adjusted gross income of at least $67,280, paid 86.34% of federal income taxes.

The top 50%, ranked by adjusted gross income of at least $33,048, paid 97.30% of federal income taxes.

The bottom 50%, ranked by adjusted gross income of less than $33,048, paid 2.7% of federal income taxes.

The Bottom Line
Members of Congress have discussed measures to reduce current tax rates, to impose a flat tax, to eliminate tax code loopholes, to increase taxes for the wealthy, and for a complete overhaul and simplification of the tax code. Yet none of these tax initiatives have yet been drafted into a new bill and proposed to Congress for a vote.

Related Articles
  1. Term

    Understanding Total Returns

    Total return measures the rate of return earned from an investment over a period of time.
  2. Insurance

    Understanding Taxes on Life Insurance Premiums

    Learn about the tax implications of life insurance premiums, including when they might be taxable and whether they are tax deductible.
  3. Investing Basics

    Understanding How Dividends Are Taxed

    Learn how dividends are taxed by the IRS, and understand the different types of dividend income as well as the capital gains tax rates.
  4. Taxes

    What IRS Form 990 Tells About a Nonprofit

    Want a picture of an organization's activities? This annual form, open to the public, sums up everything from salaries paid to missions accomplished.
  5. Retirement

    The 3 Most Common 401k Rollover Mistakes

    No one is born knowing the tax rules for 401(k)s and IRAs, but only dummies, scaredy cats and suckers don't buckle down to learn them.
  6. Taxes

    Top Reasons to File Separately When Married

    Most of the time, it makes sense for couples to file their taxes jointly. Except for these possible exceptions...
  7. Taxes

    What IRS Form 1023 Is Used For

    To be treated as a tax-exempt organization, start by filling out this form.
  8. Taxes

    Late with Your Taxes? Grab IRS Form 4868

    Fill out this form to get a few more months to file your tax return. But remember, April 15 is still the payment due date if you owe taxes.
  9. Taxes

    What IRS Form 8949 Is For

    Selling a painting or that lake property? Disposing of your fossil fuel stocks? You need to know about this IRS form.
  10. Economics

    The Problem With Today’s Headline Economic Data

    Headwinds have kept the U.S. growth more moderate than in the past–including leverage levels and an aging population—and the latest GDP revisions prove it.
RELATED TERMS
  1. Section 1231 Property

    A tax term relating to depreciable business property that has ...
  2. Emergency Banking Act Of 1933

    A bill passed during the administration of former U.S. President ...
  3. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  4. Duty Free

    Goods that international travelers can purchase without paying ...
  5. Wealth Management

    A high-level professional service that combines financial/investment ...
  6. The New Deal

    A series of domestic programs designed to help the United States ...
RELATED FAQS
  1. Can I use my IRA savings to start my own savings?

    While there is no legal reason why you cannot withdraw funds from your IRA to start a traditional savings account, it is ... Read Full Answer >>
  2. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  3. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    With a few exceptions, early withdrawals from traditional or Roth IRAs generally incur a tax penalty equal to 10% of the ... Read Full Answer >>
  4. Are credit card rewards taxable?

    Credit card rewards are taxable in the United States some of the time. The Internal Revenue Service (IRS) classifies credit ... Read Full Answer >>
  5. Where are the Social Security administration headquarters?

    The U.S. Social Security Administration, or SSA, is headquartered in Woodlawn, Maryland, a suburb just outside of Baltimore. ... Read Full Answer >>
  6. What is the Social Security tax rate?

    The Social Security tax rate is 12.4% as of 2015. Of that amount, the employee is responsible for half, or 6.2%, and the ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!