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:
|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|
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.