How We Pay Taxes, in 14 Charts

Where do our tax dollars come from? Where do they go? Who pays how much? How has it changed over time?
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Sorry, but we love taxes at The Atlantic. Actually, we're not sorry. Taxes represent perhaps the clearest illustration of American values; the relationship of citizens to their government; and the way we award the behavior we like and discourage the behavior we don't.

Many people don't share our enthusiasm. After all, taxes are complicated. There are lots of numbers, too. But that's where graphs help answer the biggest questions: Where do our tax dollars come from? Where do they go? Who pays how much? How has it changed over time?

You've got good questions. We've got good graphs. Happy Tax Day. [This article adapted from a 2012 story.]

Where do our federal taxes come from? Washington has two main sources of revenue, which together account for 80 percent of all federal income: (1) payroll taxes, which are split between employers and employees to fund programs like Social Security, and (2) income taxes, which you're all too familiar with now that it's the middle of April. [Historical graph via Tax Policy Center]

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Where do our federal taxes go? Almost entirely to insurance and security. Medical insurance, health spending, Social Security, income security, veterans retirement security, and security security (i.e.: defense) accounts for about 83 percent of government spending [Heritage].

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Can you show me a more detailed graph of where our taxes go? Okay, here. [CBPP]

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We also pay state and local taxes. Where do those tax dollars go? Mostly to education and Medicaid. [CBPP]


How have the two stories above -- total (federal, state, and local) government tax revenue and total government spending -- changed over time? Both have increased, particularly between the 1930s, with the creation of Social Security, and the late 1970s, with the creation of Medicare and Medicaid. U.S. spending in the 20th century was exquisitely sensitive to the bellicosity of European countries. Of note: We spent near an all-time high in total government after the recession, as a share of GDP, but taxes are still below their all-time low. [TPC data]

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Are we paying more in federal taxes than we used to? Nope. Every income group is paying a smaller share of their income to the government than we were in the late 1970s. [TPC]

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How will the president's new tax law change that? Mostly, it will raise taxes on the rich. Income under $108,000, which briefly enjoyed a payroll tax break, is now taxed fully for Social Security. This raised taxes for all income groups by a couple hundred to a thousand dollars.

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Who pays taxes? It's commonly said that half of Americans don't pay taxes. That's wrong. While it's true that around 50% of families don't pay a positive federal income tax, remember than an equal share of government revenue comes from payroll taxes, and most families also pay state and local taxes. Practically all earners in their prime working years pay a total federal tax. [Hamilton Project]

Who pays taxes, by age? After about 60, the share of Americans paying taxes falls dramatically.

taxpayers_by_age.png

Who pays no federal income taxes? Basically, the poor. About 80 percent of the households not owing federal income tax earn less than $30,000 a year. Since 2000, the poorest 40% of households have averaged a federal income tax rate below zero.  [The Atlantic]

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Are federal taxes progressive? Yes. The top 1% pays more federal taxes than the bottom 60% combined. They also make more than the bottom 40% combined. [Numbers along the X-axis correspond to quintiles of earners.]

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Are state and local taxes progressive? Much less so. [Wonkblog]

Are total taxes progressive? They are. The poorest 40 percent pay a disproportionately small share of their income in taxes. The top 1% account for a larger share of total taxes than total income. That's what a progressive tax system looks like. But this chart should dispel the myth that the poor don't pay taxes, at all. [CTJ]


Do Americans pay a lot of taxes? The U.S. ranks in the bottom five among OECD countries in total government revenue as a share of GDP. We're just above South Korea and Turkey. We tax less than Australia, Canada, and just about every country in Europe. [The Economist]

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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