Note: The COVID-19 recession and subsequent relief packages have dramatically changed spending and revenue levels for fiscal years 2020 and 2021. We use pre-pandemic figures below to illustrate the composition of the federal budget and taxes under more normal circumstances.
The federal government levies payroll taxes on wages and self-employment income and uses the revenue to fund Social Security, Medicare, and other social insurance programs. Payroll taxes have become an increasingly important part of the federal budget over time, as the chart below shows. In fiscal year 2019, federal payroll taxes generated $1.24 trillion, which amounts to 5.9 percent of the nation’s gross domestic product (GDP), or 35.9 percent of all federal revenues.
Receive the latest news and reports from the Center