Explaining the U.S. Tax System in Charts

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The U.S. tax system explained in 10 simple charts.

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Explaining the U.S. Tax System in Charts

  1. 1. CRFB.org
  2. 2. CRFB.org 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
  3. 3. CRFB.org 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
  4. 4. CRFB.org 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)
  5. 5. CRFB.org 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
  6. 6. CRFB.org $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 5 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
  7. 7. CRFB.org 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. 6
  8. 8. CRFB.org Tax Expenditures Bigger than Some Spending Programs 7 $68.5 $34.2 $145.4 $49.6 $35.6 $74.3 $0 $20 $40 $60 $80 $100 $120 $140 $160 Mortgage Interest Deduction vs. HUD Budget* Secondary Education Tax Provisions vs. Pell Grants** Refundable Credits vs. Cash Aid Spending*** Billions$ 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.
  9. 9. CRFB.org 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 8 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 Expenditures Refundable Credits Capital Gains and Dividends Preferences PercentChangeinAfter-TaxIncome
  10. 10. CRFB.org 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. 9
  11. 11. CRFB.org 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.
  12. 12. CRFB.org Where Tax Dollars Went in 2013 11 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
  13. 13. CRFB.org

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