WASHINGTON: The U.S. government’s over $4 trillion (£3.12 trillion) annual budget, the world’s largest, relies heavily on individual wage earners whose taxes and retirement benefits are deducted from every paycheck, leaning particularly on the top 20% of income earners.
Corporations pay just a fraction of what individuals do into the federal spending pool, which funds the military, transportation safety, veterans benefits, regulatory agencies and programs like NASA.
A New York Times investigation https://www.nytimes.com/interactive/2020/09/27/us/donald-trump-taxes.html published on Sunday shows that President Donald Trump paid just $750 in federal taxes during the years straddling his 2017 inauguration, and none at all for 10 of 15 years before then. Trump dismissed the report as “fake news.”
Trump reported https://www.reuters.com/article/us-usa-trump-ethics/trump-owes-lenders-at-least-315-million-disclosure-shows-idUSKBN1972XM income of at least $594 million for 2016 and early 2017 and assets worth at least $1.4 billion, in a financial disclosure in June 2017.
HOW THE U.S. BUDGET IS FUNDED
Individuals, whether they are self-employed or earn a paycheck from a small business or a giant corporation, foot most of the federal government’s bills.
(Graphic: Individual income tax funds U.S. federal spending Individual income tax funds U.S. federal spending – https://graphics.reuters.com/USA-TRUMP/TAXES/xlbpgjzwrvq/chart.png)
Of the $3.46 trillion in receipts taken in by the U.S. Treasury during fiscal 2019, nearly half came from the $1.72 trillion in individual income taxes collected.
In addition, $1.24 trillion in Social Security and Medicare taxes were paid by individuals, bringing their share to 85%.
Taxes paid by corporations last year totaled $230 billion, or just 6.6% of the total in 2019. The remainder of federal revenues are made up from customs duties on imported goods, excise taxes such as those on gasoline, estate taxes and other miscellaneous taxes and fees.
WHO PAYS THE MOST?
W2 wage earners – those with a regular paycheck from a business, government entity or non-profit – make up the largest share of tax revenue through income tax and social insurance withholdings, like the payroll tax that funds Social Security, the government retirement program.
Those withholdings can reduce https://www.taxpolicycenter.org/briefing-book/how-do-federal-income-tax-rates-work Americans’ take-home pay by nearly 40%, depending on income, and have made up about 73% of total revenue over the past two fiscal years through August.
Despite high unemployment because of the coronavirus pandemic, withheld income taxes in 2020 have fallen less than 1% from 2019 levels, partly due to higher earnings early in the year and aid to small businesses that kept paychecks coming to many idled employees over the spring and summer months.
Self-employed people, including many business owners, and those paying capital gains or other taxes not withheld from their paychecks, make up the second-largest category, funding around 19% of the total tax revenue during fiscal 2020 through August.
TAXES BY INCOME LEVEL
The U.S. tax system has been described as “progressive,” meaning that the share of taxes paid rises with income, through seven https://www.taxpolicycenter.org/briefing-book/how-do-federal-income-tax-rates-work tax brackets.
The very poorest, those making under $9,875 a year, are taxed at a 10% rate, while the wealthiest, or those making $518,400 and over are taxed at a 37% rate. But what the wealthiest pay is often much lower due to a variety of complicated tax loopholes, which can benefit hedge fund managers, private equity firm partners and real estate investors.
The 2017 tax cuts passed by Republicans and signed by Trump largely kept that relationship intact, but shifted more of the tax burden to wealthy and upper-middle-class wage earners. But income deductions for mortgage interest and state and local taxes paid, the biggest middle-class tax breaks, were reduced considerably.
A pre-pandemic Congressional Budget Office estimate https://www.cbo.gov/system/files/2019-12/55941-CBO-Household-Income.pdf projected the top 20% would pay 69.7% of federal taxes in 2021.
(Graphic: U.S. federal taxes paid by income group – https://graphics.reuters.com/USA-TRUMP/TAXES/oakpeexxbpr/chart.png)
America’s 37% top marginal tax rate is lower than the top rates for many wealthy and developing countries, including the OECD average of 41.2%, according to https://home.kpmg/xx/en/home/services/tax/tax-tools-and-resources/tax-rates-online/individual-income-tax-rates-table.html KPMG.
Corporations got a major tax cut in the Republican bill, when their tax rate before deductions was slashed to 21% from 35%.
IS THE UNITED STATES COLLECTING ENOUGH TAX?
No. Even before the coronavirus pandemic sparked a deep recession this year, the federal budget deficit https://fiscal.treasury.gov/files/reports-statements/mts/mts0919.pdf in fiscal 2019 was $984 billion and was forecast in January to top $1 trillion in fiscal 2020, which ends on Wednesday.
Massive spending to keep businesses and households from collapsing is expected to drive the fiscal 2020 deficit to $3.3 trillion, dwarfing the previous record of $1.4 trillion in 2009 and making up the largest share of gross domestic product since the end of World War Two.
If action is not taken to shrink deficits in future years through spending cuts or tax increases, the CBO has warned that federal debts as a percentage of GDP will double by 2050. [L2N2GI1C0].
Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor
Comments
0 comment