Analysis | The state of the American tax system, in 8 charts (2024)

Even as details are being worked out, it's worth taking a look at how federal taxes work in this country. We've compiled charts, below, explaining the basics of the U.S. tax system — who pays what, and how that's changed over time.

We're all familiar with the IRS's income tax brackets. The IRS levies a tax rate of 10 percent on your first $9,525 of income, 15 percent on$9,525 to $38,700, 25 percent on $37,950 to $93,700, and so on.

But in the tax code, various credits and deductions, for everything from student loan interest to mortgage payments, whittle down the amount of income you actually pay tax on.

Moreover, you don't just pay income tax to the federal government — you make contributions to Social Security and Medicare via payroll taxes, and pay federal excise taxes on specific products, like fuel and alcohol.

Mashall of those components together and you get a household's effective federal tax rate. Wealthy households account for the lion's share of federal tax revenue. Considering individual and payroll taxes, and other sources of federal tax income like excise taxes (on specific products like fuel, alcohol, and so on), the top 20 percent of American households pay nearly 70 percent of taxes in the United States, according to an analysis by the Tax Policy Center.

That share's been increasing, too, up from roughly 56 percent of the total federal tax burden in 1979.

By contrast, other income brackets have seen their share of federal taxes decline slightly since then. The next 20 percent of households now pay less than 20 percent of taxes, with households at lower income levels paying even less.

While it's a well-known fact that more than 40 percent of households don't pay any income tax, it's worth pointing out that when you consider the entirety of federal taxes, pretty much everybody payssomething — even the poorest quintile of households end up with a net tax burden when you factor in payroll and excise taxes, for instance.

Wealthy households' share of the federal tax burden is rising because wealthy households are making more money. The richest 20 percent made more than half of all pretax income in 2013, according to the Tax Policy Center. That's up roughly eight percentage points since 1979.

But there's a lot of variation in the upper echelons of the household income scale. The top 1 percent of households are on their way to doubling their share of the country's income pie, from 8.9 percent in 1979 to 15 percent in 2013. That top 1 percent now hauls in more money each year than the bottom 40 percent of households.

The peeling away of the top 1 percent is a big driver of the increase in inequality in the United States in recent years.

Individual income taxes are the single biggest category of federal revenue, accounting for roughly 40 percent of all money the U.S. Treasury takes in.The other major category is tax for Social Security and Medicare, accounting for another 30 percent or so.

Corporate income taxes make up roughly 10 percent more, while excise taxes and other revenue sources account for the remainder.

This distribution is very different from what it has been historically. Back in the 1930s and before, excise taxes — particularly on alcohol — made up the largest category of federal receipts. But over time, the United States began to rely more on individual and corporate income taxes for revenue.

As a share of federal receipts, taxes on Social Security and Medicare have also ballooned in recent decades.

Across the board, effective federal tax rates are now lower for everyone than they were in the 1970s and 1980s. Generally speaking, the lower income brackets have seen the steepest percentage-point declines.

On the chart above, the Bush tax cuts are responsible for the sharp drop in the early 2000s, followed by an even steeper drop due to theTax Stimulus Actsof 2008 and 2009, enacted in response to the Great Recession.

Again, these numbers include not just income taxes, but payroll, excise and corporate taxes as well. While the tax code isfairly progressive (meaning wealthier households pay higher tax rates), that hasn't stopped incomes at the top of the distribution from exploding in recent decades.

In part, that's because tax ratesfor the highest individual income tiershave dropped sharply over the pastcentury — from a high of 94 percent at the end of World War II down to just under 40 percent today.

Taxes in the United States, at all levels of government, make up a smaller share of national gross domestic product than in nearly any other of the rich countries in the Organization for Economic Cooperation and Development (OECD).

In 2015, for instance, total tax revenue in the United States amounted to just 26.4 percent of GDP, well below the OECD average of 34.3 percent. Only Korea, Ireland, Chile and Mexico collected less tax as a share of GDP.

In countries like Denmark, France and Belgium, by contrast, tax receipts add up to well over 40 percent of GDP. Those countries tend to provide much more robust social safety nets than the United States does.

Part of the reason the U.S. tax code is so complex is the bewildering thicket of tax breaks and deductions added by lawmakers over the years. The largest of those, according to the Pew Research Center, is the exemption for employer-paid health care and health insurance, which totals well over $150 billion a year.

Other major tax expenditures include lower rates on income from capital gains, exemptions for retirement contributions, and the beloved mortgage interest deduction, which costs the government nearly $64 billion a year.