Scot Wick Blog

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 4 The Economics of the Public Sector

Chapter 12 of 36 The Design of the Tax System

Section 4 of 22

…

Of the taxes collected in the U.S. economy

· federal government collects about two-thirds

· state and local governments collect the other third

Table 2 shows for year 2007, federal government tax categories and revenues collected in each

· total receipts were $2,568 billion

· U.S. population in 2007 was 302 million

· the average American paid $8,503 in taxes to the federal government

…

The largest source of revenue for the federal government is the individual income tax.

Every year each American individual or family fills out a tax form to determine how much tax it owes on income from all sources, including

· work wages

· profits from any small businesses

· interest on savings

· dividends from shares of corporations it owns

The amount of income tax paid is not simply a flat percentage of its total income.

Taxable income is computed as total income

· minus an amount based on the number of dependents, mostly children

· minus certain deductible expenses such as donations to charity

· multiplied by a percentage rate, the rate being higher for those with higher incomes

… …

largest source of tax revenue

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