Question

What three federal taxes together account for approximately 92.3 percent of federal government tax revenues?

Short answer

The three federal taxes that together account for approximately 92.3 percent of federal government tax revenues are: income taxes, corporate taxes, and social insurance taxes.

Step-by-step solution

Identify the Different Types of Federal Taxes

Familiarize yourself with the several types of federal taxes the government collects. These can include: income taxes, corporate taxes, social insurance (or payroll) taxes, and excise taxes.

Determine the Largest Contributors

Determine which three taxes contribute the most to federal tax revenues. This information is typically available in federal budget documents or other financial reports. It is well known and recorded that the three largest contributors to federal tax revenues are income taxes, corporate taxes, and social insurance taxes.

Confirm that They Account for 92.3 Percent

Lastly, confirm that these three taxes account for 92.3 percent of the federal tax revenues. This is done by calculating the percentage contribution of each of these three taxes to the total tax revenues.

Key concepts

Types of Federal Taxes

Understanding the types of federal taxes is foundational to comprehending how the government collects revenue. The United States federal tax system is primarily based on the following taxes:

• Income Taxes: These are taxes on the money people earn. They are progressive in nature, meaning that individuals with higher incomes are taxed at higher rates.
• Corporate Taxes: These taxes are imposed on a company's profits. After expenses are deducted from revenues, companies pay a percentage of the remaining profits as tax.
• Social Insurance Taxes: Also known as payroll taxes, these are taxes that fund social programs such as Social Security and Medicare. Both employers and employees contribute to these taxes.
• Excise Taxes: Federal excise taxes are taxes on specific goods, such as alcohol, tobacco, and gasoline, as well as on certain activities, like highway usage by trucks.

Each type of tax plays a distinct role in the federal revenue system and impacts individuals and businesses differently.

Federal Tax Revenue Sources

The federal government relies on several key sources of revenue to fund its operations, with the bulk of the revenue coming from the types of taxes previously discussed. To elucidate, the three primary sources that make up approximately 92.3 percent of federal tax revenues include:

• Individual Income Taxes: The largest source of federal revenue, this is the tax levied on the income of individuals. It operates on a graduated scale with rates increasing as income increases.
• Corporate Income Taxes: Although a smaller percentage compared to individual income taxes, corporate taxes are a significant federal revenue stream. It includes taxes on domestic and foreign earnings of corporations operating in the US.
• Social Insurance (Payroll) Taxes: These taxes are the second-largest source of federal revenue. They are earmarked for specific programs such as Social Security and Medicare, and both employers and employees are mandated to contribute.

Understanding the magnitude and breakdown of these sources helps provide insight into how the government plans its spending and where taxpayer money is allocated.

Government Fiscal Management

Fiscal management refers to the government's approach to taxation and spending decisions, which are integral to running the country. The government uses fiscal policy to influence the economy, allocating funds for public services, defense, and welfare programs among other needs. It is a balancing act involving three critical components:

Budgeting

Creating a federal budget is a complex process that involves estimating the government's revenues and expenditures. The budget is a financial representation of the government's priorities.

Deficit and Surplus Management

A budget deficit occurs when spending exceeds revenue. Conversely, a surplus occurs when revenues exceed spending. The government may respond to these situations by adjusting tax rates, modifying spending or employing a combination of both.

Public Debt Management

The government may borrow funds to cover deficits, leading to public debt. This debt is managed through various instruments such as U.S. Treasury bonds, and managing it is critical to the nation's financial health.

Effective fiscal management ensures that the government can meet its short-term financial obligations and long-term policy goals, such as economic stability and growth.