ANSWERS: 1
  • The chief purpose of the federal income tax is to provide operating revenue for the federal government. Federal income tax receipts fund most federal programs.

    Share of Revenue

    For the 2008 fiscal year, individual income taxes accounted for 45 percent of all federal revenue; corporate income taxes accounted for 12 percent.

    Uses

    Federal income tax revenue funds most government operations with the largest outlays being for national defense and interest on the national debt. The largest items not financed by income taxes are Social Security and Medicare.

    Social Security and Medicare

    Social Security and Medicare are financed by a separate tax system. Payroll taxes for these programs accounted for about 36 percent of federal receipts in fiscal 2008.

    Taxation as Policy Tool

    The federal income tax is also used as a tool for achieving certain policy objectives. For example, when the government has wanted to encourage energy savings, it has offered tax credits for the purchase of energy-efficient appliances or insulated windows.

    Collection

    Income taxes are collected by the Internal Revenue Service, or IRS, an agency of the Treasury Department.

    Source:

    Tax Policy Center

    Resource:

    Budget of the United States Government

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