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income tax includes all sources of income, such as the return on savings, while
payroll taxes apply solely to earnings from work. Payroll taxes have grown
from a sixth of federal revenues to well over a third.
 What are the implications of moving from taxing businesses and con-

sumption to taxing workers earnings?

At the state and local level (Figure 1-8, panel (b)), revenue sources are
roughly equally divided between sales taxes (including state and local excise


(a) Federal revenues (% of total revenue)

1960 2008
Other Other
Excise tax
(2.9%) (4.5%)

Excise tax Corporate tax

(12.8%) (11.3%)

Income tax Income tax

Corporate tax (44.5%) (43.7%)
Payroll tax
Payroll tax
(17.0% )

(b) State/local revenues (% of total revenue)

1960 2008
Income tax

Income tax
Other Other (15.8%)
(17.7%) (20.7%)
Sales tax
(28.8%) Sales tax
Property tax
Property tax (20.9%)
Federal grants
Federal grants

The Distribution of Federal and State Revenues, 1960 and 2008 This figure shows the
changing composition of federal and state revenue sources over time, as a share of total rev-
enues. (a) At the federal level, there has been a large reduction in corporate and excise tax rev-
enues and a rise in payroll tax revenues. (b) For the states, there has been a decline in property
taxes and a rise in income taxes and federal grants.
Source: Bureau of Economic Analysis, NIPA Tables 3.2 and 3.3.