U.S. federal tax revenue is the total tax receipts received by the federal government each year. Most of it is paid either through income taxes or payroll taxes. In fiscal year (FY) 2021, income taxes will account for 50%, payroll taxes make up 36%, and corporate taxes supply 7%. The rest is made up of estate taxes, excise and custom duties, and interest on the Federal Reserve's holdings of U.S. Treasurys.﻿﻿﻿

Key Takeaways The bulk of federal tax revenue comes from income taxes, payroll taxes, and corporate taxes.

FY 2021 federal revenues aren't enough to pay for spending. That creates a $966 billion budget deficit.

Tax cuts implemented by Presidents Bush, Obama, and Trump to drive economic growth further reduced revenues.

Current Revenue

The U.S. government's total revenue is estimated to be $3.863 trillion for FY 2021.﻿﻿﻿

It is too soon to predict what negative impact the COVID-19 pandemic and 2020 recession will have on FY 2021 revenues.

Income taxes will contribute $1.932 trillion. Another $1.373 trillion will come from payroll taxes. This includes $1.011 trillion for Social Security, $308 billion for Medicare, and $43 billion for unemployment insurance. Corporate taxes will add another $284 billion. The Tax Cut and Jobs Act cut taxes for corporations much more than it did for individuals. In 2015, corporations paid 11%, and income taxpayers paid 47%.

The Federal Reserve, whose revenue comes from a variety of sources, contributes $71 billion. The Fed is the bank for federal government agencies, and it pays interest on the billions of dollars in operating funds deposited by these agencies. In addition, the Fed owns $4 trillion in U.S. Treasury securities that it acquired through quantitative easing.﻿﻿﻿

The remainder of federal revenue comes from excise taxes ($87 billion), tariffs on imports ($54 billion), estates taxes ($22 billion), and miscellaneous receipts ($40 billion).

How Revenue Relates to the Deficit, Debt, and GDP

The government's annual income doesn't cover its spending, which creates a $966 billion budget deficit.﻿﻿﻿ Many argue that Congress should only spend what it earns, but that depends on where the economy is in the business cycle. Congress should use deficit spending to boost economic growth in a recession and stimulus spending to create jobs.﻿﻿﻿

Once the recession is over, the government should switch from expansionary to contractionary fiscal policy because it's the best time to raise taxes and reduce the deficit and national debt. It also keeps the economy from overheating and forming dangerous bubbles. Current revenue collected equals 16.5% of gross domestic product, which is a nation's measurement of economic output.﻿﻿﻿

When that much production is going to the federal government, it’s best to reinvest it into the economy to support future growth.

Revenues were also lowered by the extension of the Bush tax cuts and the Obama tax cuts, which fought the 2001 recession and the 2008 recession, respectively, by spurring the consumer spending that drives almost 70% of economic growth.﻿﻿﻿

U.S. Tax Revenue by Year

Here's a record of income for each fiscal year since 1789. Tax receipts fell off during the recession but started setting new records by FY 2013.﻿﻿﻿