How Has Federal Revenue Changed Over Time?

November 18, 2015

In 2015, the vast majority of federal revenue came from just two sources: individual income taxes and payroll taxes. But it wasn’t always that way. In fact, the sources of federal revenue have changed dramatically over the course of the last century.

Let’s travel back one hundred years, to 1915. Back then, the main sources of federal revenue were very different. Almost half of all federal revenue came from excise taxes, such as taxes on liquor and tobacco.[1] Another 30.1 percent of federal revenue came from customs duties, or tariffs, on imported foreign goods.

Sources of Federal Revenue, 1915

Source of Revenue

Amount of Revenue

Percent of Total Revenue

Excise Taxes

$335,367,887.14

48.1%

Customs Duties

$209,786,672.21

30.1%

Miscellaneous Revenues

$70,287,372.90

10.1%

Individual Income Tax

$41,046,162.09

5.9%

Corporate Income Tax

$39,155,596.77

5.6%

Sale of Public Lands

$2,167,136.47

0.3%

Source: Combined Statement of the Receipts and Disbursements, Balances, etc., of the United States During the Fiscal Year Ended June 30, 1915, Treasury Department, 1915.

As the table above shows, income taxes made up only a small portion of federal revenue in 1915. Individual income taxes accounted for 5.9 percent of federal revenue, while corporate income taxes accounted for 5.6 percent. At the time, both taxes were relatively low: the individual income tax had a top rate of 7 percent, while the top corporate tax rate was 1 percent.

Over the next century, the main sources of federal revenue in 1915 faded away. The U.S. followed suit as nations around the world gradually eliminated most of their customs duties. And Congress left most federal excise tax rates steady, causing overall excise tax revenues to grow more slowly than the size of the federal government.

Meanwhile, several other federal taxes grew more prominent:

  • Corporate income taxes briefly became the largest source of federal revenue after the Revenue Act of 1942 raised the top corporate rate to 40 percent.
  • Individual income taxes were also transformed by the Revenue Act of 1942 – from a narrow levy on wealthy Americans to a broad-based tax on 50 million households. Because of these changes, individual income taxes rose from 13.6 percent of federal revenues in 1940 to 45 percent of revenues in 1944, becoming the largest source of federal revenue.
  • Payroll taxes rose substantially throughout the 20th century, following the enactment and expansion of Social Security and Medicare.

Over the next ten years, the Congressional Budget Office projects that individual income taxes will continue to grow as a source of federal revenue, while corporate income taxes will become less important. As for a century from now? No one really knows how different the sources of federal revenue will be then.

For more charts like these, check out Income Taxes Illustrated.


[1] According to the Census, in 1915, liquor taxes accounted for $224 billion in revenues (66.8% of excise tax revenue) and tobacco taxes accounted for $80 billion (23.8% of excise tax revenue).


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