Overview of the Federal Tax System in 2022 (CRS Report for Congress)
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| Release Date |
Revised June 8, 2022 |
| Report Number |
R45145 |
| Report Type |
Report |
| Authors |
Sherlock, Molly F.;Marples, Donald J. |
| Source Agency |
Congressional Research Service |
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Summary:
At the end of 2017, President Trump signed into law P.L. 115-97, which substantially changed the
U.S. federal tax system. This report describes the federal tax structure and system in effect for
2018, incorporating these recent changes. The report also provides selected statistics on the tax
system as a whole.
Historically, the largest component of the federal tax system, in terms of revenue generated, has
been the individual income tax. For fiscal year (FY) 2018, an estimated $1.7 trillion, or 50% of
the federal government’s revenue, will be collected from the individual income tax. The corporate
income tax is estimated to generate another $218 billion in revenue in FY2018, or just under 7%
of total revenue. Social insurance or payroll taxes will generate an estimated $1.2 trillion, or 35%
of revenue in FY2018. For 2018, it is estimated that revenues will be 16.7% of GDP, slightly
below the post-World War II average of 17.2% of GDP.
The largest source of revenue for the federal government is the individual income tax. The federal
individual income tax is levied on an individual’s taxable income, which is adjusted gross income
(AGI) less deductions. Tax rates based on filing status (e.g., married filing jointly, head of
household, or single individual) determine the amount of tax liability. Income tax rates in the
United States are generally progressive, such that higher levels of income are typically taxed at
higher rates. Once tentative tax liability is calculated, tax credits can be used to reduce tax
liability. Tax deductions and tax credits are tools available to policymakers to increase or decrease
the after-tax price of undertaking specific activities. Individuals with high levels of deductions
and credits relative to income may be required to pay the alternative minimum tax (AMT).
The federal government also levies taxes on corporations, wage earnings, and certain other goods.
Corporate taxable income is also subject to tax at a flat rate of 21%. Social Security and Medicare
tax rates are, respectively, 12.4% and 2.9% of earnings. In 2018, Social Security taxes are levied
on the first $128,400 of wages. Medicare taxes are assessed against all wage income. Federal
excise taxes are levied on specific goods, such as transportation fuels, alcohol, and tobacco.
Looking at the tax system as a whole, several observations can be made. Notably, the composition
of revenues has changed over time. Corporate income tax revenues have become a smaller share
of overall tax revenues over time, while social insurance revenues have trended upward as a share
of total revenues. Social insurance revenues are a sizable component of the overall federal tax
system. Most taxpayers pay more in payroll taxes than income taxes. Many taxpayers pay social
insurance taxes but do not pay individual income taxes, having incomes below the amount that
would generate a positive income tax liability. From an international perspective, the U.S. federal
tax system tends to collect less in federal revenues as a percentage of GDP than other OECD
countries.
