The State of Taxes: How the Feds Fund (and Don ’t Fund) Spending

Adam N. MichelThis tax season, the IRS expects to receive more than168 million individual tax returns, which will take Americans approximately2 billion collective hours to complete. As we file our taxes, it is natural to wonder where the $4.9 trillion the Federal government collected last year came from and what it funds.Government data shows that the federal tax system is highly progressive. The highest-income Americans pay a disproportionate share of income taxes and face the highest average tax rates across all federal taxes. We are also lucky to live in a relatively low-tax country, but Congress continues to spend well beyond its means. If spending stays on its current path, interest on the debt and other mandatory programs —primarily Social Security and health spending—will consume every dollar of revenue by 2031.Income taxes are highly progressiveThe primary tax system Americans interact with each year when they file their taxes is the income tax. Thelatest Internal Revenue Service (IRS) data on income taxes for the 2020 tax year shows that the federal income tax system is highly progressive and has become more progressive over time.The lowest-income half of Americans paid an average income tax rate of 3.1 percent, while the top 1 percent of income earners paid a 26.0 percent rate. Across all taxpayers, the average income tax rate was 13.6 percent.High-income earners also pay a disproportionate share of the income taxes relative to income earned. Figure 1 shows that...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs