Individual income, payroll, and corporate income taxes cover about two-thirds of US government spending, with the remaining one-third financed by borrowing. In 2014, around 15% of government spending was expected to be financed through deficits. Tax expenditures, such as deductions, credits, and exclusions, have grown over time and now cost almost as much as total income tax revenue. Many tax expenditures function similarly to government spending programs.

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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”
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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
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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
$160
Mortgage Interest Deduction vs. HUD
Budget*
Secondary Education Tax Provisions vs.
Pell Grants**
Refundable Credits vs. Cash Aid
Spending***
Billions$
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.

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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 Expenditures
Refundable Credits
Capital Gains and Dividends Preferences
PercentChangeinAfter-TaxIncome

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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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