Total federal revenues for fiscal year 2005 amounted to $2 trillion. The largest portion, 44%, was from individual income taxes. The next largest share was social insurance and retirement receipts at 38%. The remainder is made up of corporate income taxes, excise taxes, estate and gift taxes, customs duties, federal reserve deposits, and some miscellaneous receipts.

The U.S. Constitution grants Congress the power to "collect taxes, duties, imposts and excises." Early federal government taxation was mostly in the form of excises on goods such as alcohol and tobacco. Although a tax on personal income existed briefly during the Civil War, it wasn't until 1913 that the income tax was firmly established. At that time less than 1% of people paid income taxes. During World War I, a need for more revenues drove tax policy and the top income tax rate rose from 7% to 77%. From that time on, many changes were made to the tax code regarding exemptions, deductions, and rates of taxation. But during World War II, a more fundamental change happened: the number of people subject to the income tax increased ten-fold. Nowadays, more than 100 million tax returns are filed each year. The federal income tax is progressive: The rich pay a larger percentage of their income than middle- or low-income.

Taxes to finance the Social Security system were established in 1935. Over time, more benefits have been added, including Medicare which provides health care coverage for senior citizens. Taxes to fund this system were increased at different points in time, and now stand at 15.3% of income with 6.2% paid by the employer. The employee pays 6.2% for Social Security and 1.45% for Medicare. However, the Social Security tax only applies to the first $84,900 of income. This makes the Social Security tax regressive since higher-income taxpayers pay a lower percentage of their income than lower-income taxpayers. About three-quarters of taxpayers pay more in payroll taxes (Social Security and Medicare) than they do in individual income taxes.

Other taxes such as corporate income taxes have contributed less and less to total tax collection over time. The burden of taxation has increasingly been shifted from corporations to the individual as the chart below indicates. In the past 50 years, corpore income taxes went from 27% of total federal revenues to 11%. Individual income taxes, on the other hand, have stayed relatively stable. Other types of taxes have made up the difference.

Sources:

Office of Management and Budget, Budget of the United States Government, Historical Tables, FY2006.