REVENUE, PUBLIC

REVENUE, PUBLIC. Public revenue has been derived from a changing array of tax sources in the United States. During the early national period, the federal government placed taxes on distilled spirits, sugar, gold, watches, tobacco, property sold at auction, slaves, and corporate bonds. Nevertheless, the overall amount of federal revenue raised by taxation remained relatively modest. That changed in the 1860s. During the Civil War, the federal government levied the first income tax in the nation's history. At the war's close, the federal government had netted more than $310 million in tax revenues. The Confederacy's defeat and the Union army's ensuing demobilization brought an end to the Civil War income tax. Consequently, between the late 1860s and the early 1910s, customs duties on imports and proceeds from the sale of public lands constituted the major part of the revenue of the federal government.

With the passage of the Sixteenth Amendment in 1913, the United States adopted the first permanent income tax in its history. Thereafter taxes on the income of individuals and corporations have remained the dominant source of government income since then. Excise taxes on the sale of selected commodities—notably alcohol, tobacco, and automobiles—provide an important but lesser source of revenue. After the 1930s a rapid expansion occurred in social security taxes and other employment related "contributions" that are, in turn, dedicated to financing specific social insurance benefits. During World War II, tax revenues reached $7.3 billion. The Cold War defense budget and the expansion of domestic entitlement programs in the 1960s sent tax revenues soaring ever higher.

In the fiscal year 1972 the federal government received about $86 billion, or 43 percent of its total revenue of $198 billion, from the progressive personal income tax. Another $30 billion, or 15 percent, came from the corporate income tax. Social insurance taxes and contributions accounted for $54 billion, or 28 percent. Excise, estate, and gift taxes; customs duties; and miscellaneous receipts produced a total of $28 billion, or 14 percent.

A sluggish economy in the late 1970s led to taxpayer revolts throughout the United States. Indeed, Ronald Reagan won the 1980 presidential election in part on the fact that he promised voters that he would enact sweeping tax cuts. In 1981 Congress responded by passing $750 billion in tax cuts over six years, the largest tax reduction in the nation's history. However, a record national debt soon ensued, despite the fact that federal receipts reached more than $1.5 trillion by the end of the decade. Gradual tax hikes followed in an effort to reduce the national deficit. With the aid of a surging economy, annual federal revenue surpassed annual federal spending in the late 1990s, thus marking the first federal budget surplus in nearly forty years.

In contrast to the federal government, state governments have generally depended most heavily on sales taxes, although most have adopted personal and/or corporate income taxes as sources of supplementary revenue. Through grants-in-aid the federal government has financed major shares of state expenditures for highways and public assistance.

Cities, counties, and other local governments raise the bulk of their income from the traditional taxes on property values. The larger cities, particularly, have levied payroll taxes in an effort to obtain revenue from commuters who work in the central city but live in adjacent suburbs. State and federal governments have financed rising proportions of education and other local activities, in response to the slow growth in the yield of fixed-rate property taxation.

Overall, revenues raised by state and local governments rose from $18.8 billion in 1951 to $114.8 billion in 1971 to $1.5 trillion in 1999. These funds were supplemented by$2.3 billion of federal grants in 1951, $26.9 billion in 1971, and $270.6 billion in 1999.

The following table shows the growth of federal revenue, by ten-year periods (in millions):

Murray L.Weidenbaum/a. g.

See alsoBanking Crisis of 1933 ; Debt and Investment, Foreign ; Depression of 1920 ; Laissez-Faire ; Office of Management and Budget ; Share-the-Wealth Movements .