Taxes pay for everything from schools and roads to Social Security and the military. How much should you and other Americans pay — and is today's level too much, too little, or about right?
Quick estimate
Quick opinion
The situation
Americans pay taxes to three levels of government. In fiscal year 2026, the federal government collected about $5.4 trillion — about 16.8% of GDP. States, counties, cities and school districts collect roughly another 8.5% of GDP, mostly from sales taxes, property taxes and state income taxes. Together, that's about 25.3% of GDP.
Where federal tax money came from, fiscal year 2026
- Individual income taxes$2.84T53%
- Payroll taxes (Social Security & Medicare)$1.81T34%
- Corporate income taxes$0.38T7%
- Customs duties (tariffs)$0.17T3%
- Other (excise, estate & gift, etc.)$0.19T4%
Most federal revenue comes from two taxes on people's earnings: the individual income tax and payroll taxes, which fund Social Security and Medicare. Corporate income taxes and tariffs bring in much less.
Federal revenue rose 3% in 2026, mainly from individual income and payroll taxes. Corporate tax receipts fell 16%, partly because the 2025 One Big Beautiful Bill Act let companies deduct investments faster, and that law also made the 2017 income tax cuts permanent. Customs duties dipped, mainly because of refunds of tariffs that had been collected under emergency powers. Even so, revenue covered only about three-quarters of federal spending, leaving a deficit of about $2 trillion.
Pros and cons
The federal government spent about $2 trillion more than it collected in 2026. Higher taxes are one of the only two ways to shrink that gap — the other is cutting spending.
As more Americans retire, Social Security and Medicare cost more each year. Keeping those promises — or adding services such as child care — takes more revenue.
The US collects less in taxes than almost every other wealthy democracy, many of which also have strong economies and provide universal health care.
Higher taxes on work, saving and investment reduce the reward for them, which can mean fewer jobs, less investment and slower growth in wages.
More revenue tends to bring more spending, not smaller deficits. Cutting waste and slowing spending growth should come first.
Every dollar taxed is a dollar families and businesses can't spend or invest as they see fit — and governments don't always spend it well.
Contributed pros and cons
What notable people have said. Rate how much you agree with each.
WB
RR
AMHistorical context
How much of the economy has gone to taxes — federal, state and local — over the last century?
All taxes (including Social Security and Medicare payroll taxes) collected by all levels of government, as % of GDP. Solid line and filled dots: OECD figures, for the years the OECD publishes. Dashed line and hollow dots: rough Rebalance estimates from federal receipts plus state and local taxes (before 1965), and from 2026 federal receipts (2026).
In the 1920s, taxes took only about a tenth of the economy, and most of that went to state and local governments, largely through property taxes; the federal government collected about one dollar in three. In the Great Depression the share rose even though tax collections didn't, because the economy shrank. World War II changed everything: the federal income tax, once paid only by the well-off, was extended to most workers and withheld from paychecks, and federal revenue tripled as a share of the economy. After the war, payroll taxes grew to pay for Social Security and, from 1965, Medicare, and total taxes settled at about a quarter of GDP — where they have stayed, give or take a few points, ever since. The ups and downs since then mostly follow the economy: revenue peaked at 28.3% of GDP in 2000 during the dot-com stock boom, fell to 22.9% in the Great Recession of 2009, and jumped again in 2022 with high incomes and capital gains, before falling back. Major tax cuts (1981, 2001–2003, 2017, 2025) and increases (1990, 1993, 2013) moved the federal share by a point or two at a time.
International context
Countries vary widely in how much they collect, mostly because they ask government to do very different things. Denmark and France collect over 40% of GDP, and in return provide universal health care, free or nearly free college, heavily subsidized child care and generous pensions and unemployment benefits. In the US, many of those things are paid for privately instead — most working-age people get health insurance through an employer, and families pay for child care and much of college themselves — so those costs show up in paychecks and household budgets rather than in taxes. Switzerland collects about as little as the US, partly because people buy their own (required) health insurance. At the other end, Saudi Arabia collects little tax because oil pays most of the government's bills, and China and Mexico collect less, partly because many people work in the informal economy, where taxes are hard to collect.
Considered opinion
NextSpendingRed Ink — Deficit & DebtCapital Gains TaxInequality
Wonkery
“Taxes” here means what the OECD counts in its tax-to-GDP ratio: all taxes collected by federal, state and local governments, including payroll taxes for Social Security and Medicare. It leaves out fees, charges and other non-tax income. The 2026 estimate (25.3%) adds federal receipts for fiscal year 2026 ($5.40 trillion ÷ GDP of about $32.2 trillion = 16.8%, from CBO) to state and local taxes of about 8.5% of GDP — the OECD's 2024 total (25.6%) minus 2024 federal receipts (17.1%). The historical chart uses the OECD's published years from 1965 on; earlier points are rough Rebalance estimates from OMB federal receipts and Census state and local tax data, and will be checked against the Bureau of Economic Analysis's national accounts. International figures are the OECD's for 2024, except the EU average (Eurostat, which also counts imputed social contributions, so it runs a little higher) and Saudi Arabia (tax revenue from its Ministry of Finance, divided by GDP). Per-household figures divide by about 134 million households.
Sources
Photo credits
Warren Buffett: U.S. Department of Commerce (public domain), via Wikimedia Commons. Other speaker photos are official portraits in the public domain.