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Federal Budget 101, Part 2 of 5: Revenue

Federal Budget 101, Part 2 of 5: Revenue


Understanding the Federal Budget: The Process, Revenue, Expenditures, Deficits



Part 1: The Budget Overview and Process
Part 2: Revenue (this page)
Part 3: Expenditures
Part 4: Putting it all Together
Part 5: Deficits and the Debt

Part 2 of a 5-part Series: Revenue



The main focus during the budget process is on the spending side of the ledger. We’ll get to the spending side in part 3 of this series. Budgets aren’t just about spending, of course. We have to consider the revenue side.


For the federal government, there are two things to consider in regards to revenue: Where to get the money, and how much. For both of these, the answers involve much more than the current budget legislation and process. The federal government is not in the business of producing and selling anything, so it relies on tax receipts for revenue. For any year, current tax laws are the cumulative results of legislation over many years. The dollar amount of revenue will depend on the tax laws as well as the performance of the economy. The amount that is included in the budget will be the projected tax receipts based on these factors.

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Tax laws and economic performance that factor into revenue projections are subjects that are beyond the scope of this writing. If you look at the pie chart above (“Projected Tax Revenue”), you can see the breakdown of the categories of taxes in President Obama’s fiscal year 2015 budget proposal.


It is interesting to note the difference between the current breakdown and that of 1934, which is the first year included in tables available at the Office of Management and Budget website.


In 1934, the breakdown was as follows:

  1. Individual income tax: 14% of total
  2. Corporate income tax: 12% of total
  3. Social Security and Retirement: 1% of total
  4. Excise Taxes: 46% of total
  5. Other (estate & gift; customs, misc.): 27% of total



The graph below shows how the contributions from individual and corporate income taxes have changed over the years.



The revenue side of the budget can be viewed as a beginning point for creating the budget, as in:


“Here is how much money we have available, what are we going to use it for?”



Of course, for most years, the government ends up spending more than the amount of revenue that it receives. These deficits will be discussed in part 5 of this series.


Next up: Part 3: Expenditures


See on blue-route.org
Author: 
Jerry Wyant
Date: 
2014-09-05
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