Federal Tax Revenue

Until exceeded by income tax around the time of World War I, tariffs were the biggest source of revenue for the United States federal government. The first time a federal income tax was put in place was in 1861 and 1862 in order to help fund the Civil War. Originally, the tax was 3 percent for incomes over $800, which increased to 5 percent for incomes totaling over $10,000. Although the income tax was rescinded in 1872, a new one was put on the books in 1894 as part of the Wilson-Gorman Tariff Act.

Tariffs are now only a minute part of the federal tax revenue; most federal income now comes from income taxes, both personal and corporate. Although income tax percentages have varied greatly in the last 100 years - primarily to help pay for wars and the Great Depression - income taxes now range from 0 to 35 percent, depending on the individual's tax bracket.

Currently, about two thirds of the United States population pays an income tax. The bottom one third of the population, especially those with children or other dependents, either pays no income taxes or may even receive a subsidy due to child tax credits and the earned income tax credit. This system is considered a progressive tax, as it charges a higher percentage of taxes to those with a higher income.

The United States is unique in that it is one of few countries in the world that imposes income tax on its citizens that live and earn money outside of the United States.

Aside from collecting income taxes for general expenses, the federal government collects a number of other taxes earmarked for specific programs or departments. Social security and Medicare are two such programs, with funds deducted directly from paychecks and routed accordingly. Other examples are airport taxes and fees, which are meant to be placed in trust funds and used for airport expansion and other needs related to the industry where the tax was charged. However, many times these taxes are borrowed by the federal government before reaching the trust funds, and are replaced by bonds and other forms of government "I Owe You's." Federal excise taxes are often meant to perform the same way, and are charged on items such as fuel, tires, telephones, tobacco and alcohol.