Overview of the Federal Tax System in 2024 (CRS Report for Congress)
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| Release Date |
Dec. 18, 2024 |
| Report Number |
R48313 |
| Report Type |
Report |
| Authors |
Donald J. Marples; Brendan McDermott |
| Source Agency |
Congressional Research Service |
Summary:
This report describes the federal tax structure and system in effect for 2024. 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. In
FY2023, $2.2 trillion, or 49% of the federal government’s revenue, was collected from the
individual income tax. The corporate income tax generated another $420 billion in revenue in
FY2023, or 9% of total revenue. Social insurance or payroll taxes generated $1.6 trillion, or 36%
of revenue in FY2023. In FY2023, total revenues were 16.5% of gross domestic product (GDP),
slightly below the post-World War II average of 17.0% 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, estates and gifts, and certain goods. Corporate
taxable income is 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 2024, Social Security taxes are levied on the first $168,600 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 Organisation for Economic Co-operation and Development (OECD) countries.
