Revenue Steadily Increasing

Government revenue in the United States steadily increased from $1.3 trillion in the mid 1980s to $3.7 trillion in 2000. But its steady increase was impacted in the recession of 2000-01 and the Great Recession of 2008-09.

Chart 3.11: Government Revenue in dollars

Government revenue first reached $1.3 trillion in the mid 1980s, and then breached $2 trillion in 1992 just after the recession of 1990-01. In the 1990s revenue increases accelerated, reaching $3.2 trillion in 1998 and reaching a peak of $3.7 trillion in 2000. But in the 2000s, with the dot-com crash and 9/11, government revenue declined hitting $3.3 in 2002 before increasing again. Revenue reached above $4 trillion in 2005 and $5 trillion in 2007. Then came the Crash of 2008 and government revenue nose-dived down to $3.6 trillion in 2009. After a few years of catch-up, revenue is expected to breach $6 trillion in 2014.

Chart 3.12: Government Revenue as Percent of GDP

Viewed as a percent of Gross Domestic Product (GDP) government revenue in recent years has fluctuated. At 32 percent of GDP in 1985, revenue increased slightly to 33 percent of GDP through the mid 1990s. Then revenue began an increase in the boom of the late 1990s, reaching 37.2 percent of GDP in 2000. Revenue retreated to 31.2 percent of GDP in the trough of the 2000-01 recession, before increasing back to 37 percent of GDP at the business cycle peak in 2007.

In the Crash of 2008 government revenue decreased sharply. Revenue declined to 26 percent of GDP in 2009. But revenue is expected to recover to about 35 percent of GDP in the next few years.

Recent Revenue by Government Level

Federal revenue as a percent of GDP has shown a decline in recent decades. But state and local revenue have increased.

Chart 3.13: Government Revenue by Level

Federal revenue stood at 17.4 percent of GDP in 1985. State government revenue was 8.3 percent of GDP and local revenue was 6.3 percent of GDP. By the year 2000 federal revenue had increased to 20.5 percent of GDP, but state revenue had increased to 10 percent of GDP and local revenue had increased to 6.7 percent of GDP.

In the 2000-01 recession federal revenue decreased to 17.5 percent of GDP by 2002, state revenue had decreased sharply to 7.2 percent of GDP and local revenue had decreased modestly to 6.5 percent of GDP. In the recovery, federal revenue increased to 18.4 percent of GDP by 2007, state revenue had increased sharply to 11.2 percent of GDP and local government revenue had increased modestly to 7.4 percent of GDP.

Then came the Crash of 2008. In 2009 federal revenue dropped to 15 percent of GDP, state revenue collapsed to 4.5 percent of GDP (including $0.5 trillion in employee pension fund losses) and local revenue decreased to 6.4 percent of GDP. By 2015, federal revenue is projected to increase to 19 percent of GDP, state revenue to 9.5 percent of GDP and local revenue to 7 percent of GDP.

Revenue by Type

Income tax revenue fluctuates; ad-valorem taxes do not.

Chart 3.14: Total Recent Revenue by Type

In 1992 income taxes at all levels of government collected 11.3 percent of GDP; social insurance taxes collected 7.4 percent of GDP. Ad-valorem taxes, such as sales and property taxes, collected 7.9 percent of GDP. Fees and charges totalled 2.2 perent of GDP and business revenue totaled 4.4 percent of GDP.

At the top of the business cycle in 2000, income taxes collected 14.8 percent of GDP, social insurance taxes collected 7.2 percent of GDP and ad-valorem taxes collected 7.6 percent of GDP. Fees and charges totalled 2.3 percent of GDP and business revenue totalled 5.3 percent of GDP.

At the top of the business cycle in 2007, income taxes collected 13.5 perent of GDP and social insurance taxes amounted to 6.9 perent of GDP. Ad-valorem taxes totalled 7.6 percent of GDP. Fees and charges totalled 2.5 perent of GDP and business revenue totalled 6.5 percent of GDP. Two years later in the depths of the Great Recession income taxes had declined to 9.8 percent of GDP and social insurance taxes had increased to 7.1 percent of GDP. Ad-valorem taxes were almost unchanged at 7.7 percent of GDP. Fees and charges increased to 2.8 percent of GDP and business and other revenues had gone negative to -1.4 percent of GDP, primarily due to $0.5 trillion in losses on government employee pension plans.

By mid-decade, income taxes are expected to increase their take to 13.6 percent of GDP, and social insurance taxes will be about 6.8 percent of GDP. Ad-valorem taxes will increase to 8 percent of GDP, fees and charges will increase to 2.5 percent of GDP and business revenue will increase to 4.4 percent of GDP.

Revenue Breakdown by Level of Government

The federal government raises revenue principally from income and social insurance taxes. State government revenue breaks down about equally between income taxes, ad-valorem taxes, and fees and business revenue. Local government revenue is about half ad-valorem taxes and half fees and business revenue.

Chart 3.15: Federal Revenue in Recent Decades

In the last 25 years, since the 1990s, federal revenue has come principally from income taxes, individual and corporate. Individual income tax in 1985 yielded 7.9 percent of GDP and the corporate income tax yielded 1.45 percent of GDP. By the top of the late 1990s boom the individual income tax was yielding 10.2 percent of GDP and the corporate income tax was collecting 2.1 percent of GDP. But by the end of the 2000-01 recession in 2003 the individal income tax had collapsed to 7.2 percent of GDP and the corporate income tax take was cut almost in half to 1.2 percent of GDP. At the top of the 2000 boom the individual income tax collections had increased in 2007 to 8.3 percent of GDP and the corporate income tax had increased to 2.65 percent of GDP. IN 2010 in the depths of the Great Recession the individual income tax collected 6.2 percent of GDP and the corporate income tax collected 1.32 percent of GDP.

Chart Key:

- Individual Income Tax
- Corporate Income Tax
- Social Insurance Tax
- Ad-valorem Tax

The next largest tax source comes from social insurance taxes like the FICA tax on wages. It fluctuates much less than the income tax. In 1985 social insurance taxes collected 6.3 percent of GDP and had increased modestly to 6.6 percent of GDP just before the 1990-91 recession. In the 1990s boom social insurance taxes collected between 6.4 and 6.6 percent of GDP. In the 2000s social insurance taxes started out in 2001 at 6.8 percent of GDP then declined gradually to 5.4 percent of GDP in 2011. Social insurance tax collections are expected to increase modestly by the mid 2010s.

Other revenue sources amount to about 1 percent of GDP.

As the chart shows, the yield from income taxes fluctuates with the economy, and the fluctuation has been getting worse.

Chart 3.16: State Revenue in Recent Decades

State revenues in the last quarter century have come principally from three sources: income taxes, ad-valorem taxes such as property and sales taxes, and business revenue. Income taxes collect from 2.0 to 2.3 perent of GDP, social insurance taxes collect about 0.6 to 0.8 perent of GDP. Ad-valorem taxes yield in the rage of 2.9 to 3.3 perent of GDP, and fees and charges have increased from 0.8 percent of GDP in 1992 to 1.1 in 2010.

As the chart shows, the revenue from business income fluctuates with the economy. This is primarily driven by gains and losses in state employee pension funds. In a good year, business income can reach 4 percent of GDP. In 2009, after the Crash of 2008, business income was -2.5 percent of GDP.

Chart 3.17: Local Revenue in Recent Decades

Local revenues have remained principally ad-valorem taxes, ranging from 3 to 3.8 percent of GDP. Income taxes remain negligible in most localities. Fees and charges range from 1.3 to 1.6 perent of GDP. Business income, including employee retirement operations, account for revenue ranging from 1 to 2 percent of GDP.