How the U.S. Federal Government Is Funded (And How Your Share is Calculated)

Quick Overview

The US federal government collects approximately $4.9 trillion in revenue, with nearly 99% coming from taxes, broken down into income taxes ($2.44 trillion), payroll taxes ($1.7 trillion), corporate taxes ($530 billion), and other federal taxes ($220 billion), all governed by a progressive tax system often called the "Staircase of Pain" where higher earnings face higher rates, while recent tax legislation like the Tax Cuts and Jobs Act of 2017 simplified rates, increased standard deductions, and limited SALT deductions.

Key Points: The federal government collected $4.9 trillion in revenue in 2024, with 99% derived from taxes. Income taxes account for $2.44 trillion (49% of total revenue), payroll taxes for $1.7 trillion (35%), corporate taxes for $530 billion (11%), and other federal taxes (like excise/estate) for $220 billion (4%). Payroll taxes include 6.2% for Social Security and 1.45% (plus 0.9%) for Medicare, totaling 12.4% for self-employed individuals. Deductions shrink taxable income; the standard deduction for 2025 is projected at $15,750 (single) and $31,500 (married filing jointly), which 88% of Americans utilize due to simplicity. Capital gains taxes are levied when assets are sold for more than the purchase price; long-term gains (held over one year) are taxed at preferential rates, up to 20% for top earners, while short-term gains are taxed as ordinary income. The Tax Cuts and Jobs Act of 2017 reduced the top corporate tax rate from 46% to a flat 21% and temporarily reduced individual income tax rates while increasing the standard deduction and capping SALT deductions at $40,000. State and local governments collect an additional $2.4 trillion in taxes, which include income, sales, and property taxes; states like Wyoming, Texas, and Nevada have no state income tax.

Context: This video, presented by Karlton Dennis, serves as a detailed tutorial explaining the various sources of US federal government funding, primarily through taxes, and breaks down how different types of income (wages, capital gains) are taxed. The speaker contrasts the complex progressive income tax system, dubbed the "Staircase of Pain," with recent legislative changes like the Tax Cuts and Jobs Act of 2017, highlighting key figures like payroll tax contributions and standard deduction amounts to empower viewers to better manage their finances.