explaining the u.s. tax system in charts

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Income and payroll taxes cover about two-thirds of government spending. In 2014, about 15 percent of the government’s spending will be financed by deficits.

Where Does Government Financing Come From?

1

Individual income taxes

$1,382

Payroll taxes $1,033

Corporate income taxes $351

Other $265

Borrowed $492

(Billions of dollars projected to be collected in 2014)

Source: CBO, April 2014 budget projections

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Average Federal Tax Rate Paid By Household

Source: CBO, “The Distribution of Household Income and Federal Taxes, 2010”

2

All income groups pay taxes, with the highest earners facing the highest tax rates.

1.5%

7.2%

11.5%

15.6%

24.0%

29.4%

18.1%

0%

5%

10%

15%

20%

25%

30%

35%

Bottom 20% Second 20% Middle 20% Fourth 20% Top 20% Top 1% All Taxpayers

Individual Income Tax Payroll Taxes

Coporate Income Tax Excise Taxes

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Who Pays Federal Taxes?

Source: CBO, “The Distribution of Household Income and Federal Taxes, 2010”

3

Bottom 20% 0.4%

Second 20% 4%

Middle 20% 9%

Fourth 20% 18%

81st to 90th Percentiles

16% 91st to 95th Percentiles

12%

96th to 99th Percentiles

17%

Top 1% 24%

The top 20% of households pay almost 70% of the nation’s taxes. The top 1% is responsible for paying nearly a quarter.

(Percentage of the tax burden paid by households ranked by income level)

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14%

16%

18%

20%

22%

24%

Spending

Revenue

Revenues Are Insufficient for Current Level of Spending

Source: Congressional Budget Office

20.4% SPENDING

AVERAGE

17.4% REVENUES

AVERAGE

4

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$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

Over $1 Trillion in Tax Expenditures

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The number of “tax expenditures” – all the deductions, credits, and exclusions – has grown over time and is almost the same as the amount of income tax collected.

Income Tax Revenues

Revenue Lost to Tax Expenditures

Source: OMB historical data, compiled by the National Priorities Project..

Note: Summing tax expenditure estimates is a useful gauge of size but does not take into account possible interactions among individual tax expenditures.

Billions of 2013 dollars

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In order to stabilize Debt at 60% of the economy by 2021:

Tax Expenditures

28%

Health Spending

17% Other

Mandatory 11%

Social Security 17%

Non-Defense Discretionary

14%

Defense Discretionary

13%

Source: Congressional Budget Office, Joint Committee on Taxation (2013)

Tax Expenditures Are Similar to Spending

Many of these tax expenditures are similar to government spending programs. For instance, $1,000 given out in Pell grants is economically identical to $1,000 given out through education tax credits

Tax expenditures would make up more than a quarter of the federal budget if they were counted as spending.

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Tax Expenditures Bigger than Some Spending Programs

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$68.5

$34.2

$145.4

$49.6

$35.6

$74.3

$0

$20

$40

$60

$80

$100

$120

$140

$160

Mortgage Interest Deduction vs. HUDBudget*

Secondary Education Tax Provisions vs.Pell Grants**

Refundable Credits vs. Cash AidSpending***

Bill

ion

s $

Tax Expenditures

Program Spending

*Source: Office of Management and Budget, President’s Budget FY 2015; Joint Committee on Taxation

**Tax expenditures include the American Opportunity credit, Lifetime Learning credit, personal exemption for students, exclusion of scholarship income, tuition & fees deduction, and other smaller deductions. Source: CLASP, Reforming Student Aid *** Refundable credits include EITC and Child Tax Credit. Spending includes SSI,TANF, and Foster Care Assistance. Source: House Budget Committee, War on Poverty

Billions, FY2012

Spending through the tax code exceeds government spending on the cash assistance programs and support for housing.

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Distribution of Select Major Tax Expenditures by Income Group

Source: CBO, “The Distribution of Major Tax Expenditures in the Individual Income Tax System.” “Other Major Tax Expenditures” includes interactions between the provisions.

Note: Graph represents select income tax expenditures as identified by CBO which make up two-thirds of total tax expenditures

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While refundable credits benefit low-income taxpayers, most other tax expenditures are regressive.

0%

2%

4%

6%

8%

10%

12%

14%

Lowest Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Top 1 Percent

Other Tax ExpendituresRefundable CreditsCapital Gains and Dividends Preferences

Pe

rce

nt

Ch

ange

in A

fte

r-Ta

x In

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Renewable Energy Production Tax Credit

$13

Other Energy

$7 Research Credit $15

Active Financing Income

$10

Bonus Depreciation $3

Other Business $20

Sales Tax Deduction

$6

Other Individual

$10

Business Provisions

57%

Energy Provisions

23%

Individual Provisions

20%

What’s a Tax Extender?

Congress is considering renewing over 50 tax provisions that expired at the end of last year. Extending them all for two years would cost about $85 billion. Three-fifths go to businesses.

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68%

70%

72%

74%

76%

78%

80%

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Extenders and Bonus Depreciation

Extenders

PAYGO Baseline*

Debt Worsens if Tax Breaks Are Not Paid For

10

Percent of GDP

75.5%

77.8%

79.0%

Source: Congressional Budget Office

*PAYGO Baseline assumes a continuation of current law, along with a drawdown in war spending.

If Congress extends the expired tax cuts, they should pay for the additional cost.

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Where Tax Dollars Went in 2013

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Share of each $100 paid in taxes

Defense and Military Benefits $ 27.70

Social Security $ 23.39

Health $ 22.23

Medicare $ 14.24

Medicaid $ 7.68

Other Health $ 0.30

Interest $ 6.41

Transportation $ 2.65

Civilian Federal Retirement $ 2.65

Refundable Credits $ 2.43

Food Stamps $ 2.39

Supplemental Security Income (SSI) $ 1.53

Unemployment Insurance $ 2.00

Housing assistance $ 1.35

Education $ 1.32

Foreign aid $ 0.97

Agriculture $ 0.85

Other $ 2.13

Total $100

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