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Categories of Revenues for the Federal Government Essay


Revenue refers to the income that an entity receives. Federal revenues thus refer to the income that is attributed to the federal government’s reserves. The federal government can be said to be majorly dependent on three categories of sources of revenues.

The first category of the federal revenue which is also the major one is individual income tax. This is the most significant as it averagely forms about a half of the federal government revenues.

A consideration of the data offered by the congressional budget office for example reported the country’s federal revenue to be composed of one thousand one hundred and forty six billion dollars of individual income tax out of the total revenue which was reported at slightly above two thousand five hundred billion dollars in the year 2008.

The trend of the federal revenues as projected by the body for the time period ranging from the year 2008 up to the year 2019 also describes the same percentage of individual income tax in projections. Other sources of federal revenue include corporate income tax and social insurance taxes (Congressional, 2009).

The individual income tax has its history ranging all the way back to the nineteenth century with controversies that preceded its enactment in the year 1913. For the purpose of the individual income tax, internal revenue service was established to ensure collection of such taxes and ensuring that citizens adhere to paying of taxes as prescribed.

The body was thus given the responsibility to “investigate and prosecute thousands of slackers who don’t pay their taxes” (Lcsd, n.d., p. 1) and even to audit those who pay taxes to ensure compliance to the provisions of taxes according to the rates.

Though not in totality, the individual income tax is based on the payee as you earn basis. The more an individual earns, the more he or she pays to the federal government in terms of tax.

The higher percentage that individual income tax contributes to the total federal revenue as compared to other taxes is attributable to the relatively higher rates that are charged on individual tax as compared to other taxes such as corporate tax.

It is for example noted that while individual tax is charged at an average of almost fifty cents for every single dollar that an individual earns, corporate tax is charged at about forty cents lower on every single dollar earned by each corporate society.

While individual income tax is charged on individuals, corporate tax is charged on business entities on their income. The other major contributor to the federal revenue, social insurance taxes, on the other hand incorporates both individuals and corporate entities.

The tax which is consolidated for social security is charged on both workers and their employers and separately treated from the federal’s general consolidated funds.

The three sources of revenue hold mutual importance to one another. One of the most important aspects of the revenue sources is the shared responsibility that ensures that one source is not overwhelmed by the federal need for financing its expenditures.

The social insurance tax, which is spread among individual employees and employers, a category that includes corporate bodies, ensures a shared responsibility among the parties that are charged with the payment of tax in the different category.

This shared responsibility as a result benefits the contributors of both individual tax as well as the corporate taxes in that if the responsibility was put on one party then it would cause more strains off the equilibrium.

The social security tax also benefits in the fact that the shared responsibility that allows for the contribution without more strain that would be realized if it were to be charged on one source ensures its feasibility at equilibrium economic forces.

The revenue sources also enjoy the mutual importance of fulfilling the common objective of contributing to the federal expenditures (Lcsd, n.d.).

Major Categories of Expenditure for the Federal Government

Federal expenditure is majorly divided into two categories, discretionary and mandatory. Discretionary federal expenditure has its provisions made after periodic time durations which are normally a year. This category expenditure is further divided into military and those expenditures that are not geared towards military operations.

Military expenditures however form the main basis of discretionary expenditure. Other discretionary expenditures are absorbed in the operation of the duties of the federal government and the management of its operating departments. This expenditure has however been realizing a reducing trend in terms of the percentage of the government’s total expenditure.

Mandatory expenditure is a set of federal expenditures that are permanently provided for by federal legislations. It includes expenditures into “social security, Medicare and Medicaid” (Lee et al., 2008, p. 46) among others.

The mandatory expenditure is significantly biased towards financing of social security and health benefits in term of contributions towards Medicare as well as Medicaid.

While the discretionary federal expenditure has been declining over the past decades, the mandatory expenditures have been on the rise and currently constitute a larger percentage of the federal expenditure as compared to discretionary expenditure.

While the mandatory expenditure is majorly focused towards service provision to citizens for a better welfare, discretionary expenditures are majorly associated with the stability and functionality of the government both internally and externally.

Owing to the single source of financing for both discretionary and mandatory expenditures, they derive the mutual benefit of efficiency in use of finances for every category of expenditure.

Efficiency in use of funds in discretionary expenditure will for instance reduce or even totally eliminate wastages which will mean more availability of funds for the other category of expenditure (Lee et al., 2008).

Level of Federal Debt

A review of the level of federal debt as reported by the congressional budget office shows an increasing trend which has been transmitted to the forecast of the country’s future debt. The federal dept as recorded in the year 2008 was at slightly above five trillion dollars.

A forecasted trend of the same is however revealing a consistently increasing debt value at yearly intervals. A statistic review will thus reveal a closely consistent increasing debt values over the past years as a basis for the increasing forecast.

The current level of federal debt raise concerns especially due to the fact that the government is spending a lot of money on foreign missions such as aid and military advances in other countries. A sound opinion would be for the federal government to reduce its foreign expenses to first cover for its debt.

The forecasted increasing trend of the country’s dept is also alarming and should be checked in terms of adopting necessary policies (Congressional, 2009).

References

Congressional. (2009). The budget and economic outlook: Fiscal years 2009 to 2019. Web.

Lcsd. Sources of federal revenue. Web.

Lee et al. (2008). Public budgeting systems. Sudbury, MA: Jones & Bartlett Learning.

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1. IvyPanda. "Categories of Revenues for the Federal Government." May 14, 2020. https://ivypanda.com/essays/categories-of-revenues-for-the-federal-government/.


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IvyPanda. 2020. "Categories of Revenues for the Federal Government." May 14, 2020. https://ivypanda.com/essays/categories-of-revenues-for-the-federal-government/.

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IvyPanda. (2020) 'Categories of Revenues for the Federal Government'. 14 May.

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