Where Does Gov Get All That Money?

Not surprisingly, government's single biggest source of revenue is income taxes: an expected $1.4 trillion in 2009, equal to 26% of government spending. The second biggest source of funding is debt - at 24% of government spending. Debt can best be thought of as future taxes. An additional 18% comes from Social Security and Medicare taxes. Corporate income taxes yield 6%; property taxes amount to 7%; sales taxes contribute another 6%; gasoline and diesel taxes give up 1%; the remaining 11% of government funding is nickeled and dimed out of the economy from alcohol and tobacco, public utilities, insurance premiums, customs duties, unemployment insurance, fines and penalties, etc...

Payroll taxes are collected to fund Social Security and Medicare. It may be listed as FICA on your paystub. The number reported there is half of what you actually pay. Your employer is charged for the other half.

Economists broadly agree that the money would be available and used for higher pay if it was not taxed¹, so you, the worker, are actually paying two times the FICA deduction from your paystub. It is just a little sleight of hand that makes your tax seem lower than it really is.

It is worth noting here that ultimately only individuals pay taxes. Corporations, of course, are not Homo sapiens at all. Taxing corporations is like taxing golden retrievers. Regardless of how willing it is, the canine does not cough up the cash. The dog's owner, people in the pet industry, and kids pay. Golden retriever taxes would push the cost of keeping dogs up, lowering demand for dogs, leaving kids with fewer dogs, which means vets, dog food makers and others lose business.

In the case of corporations, every penny of taxes collected from them are paid by individuals -- owners, workers, vendors, customers -- somewhere, somehow. Raising taxes on corporations does not reduce taxes on individuals. To the extent that corporate taxes are paid by their owners, instead of employees, customers, and suppliers, they do shift some of that burden to the wealthy, who hold a greater share of corporate stock than others. Economists make a strong case that most of the burden is borne by workers and consumers.

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