Federal government revenue includes all money that the government obtains from external sources, such as sales of investments, net value of correcting transactions and private trust transfers. There are three main groups of revenue for federal government and they include corporate income taxes, social insurance taxes, and individual income taxes. Individual income taxes are imposed upon people and other entities obtaining interest from bonds and dividends and notes from stock. Corporate income taxes are taxes based upon the revenue made by a corporation. The corporation starts with federal tax income from federal tax return. Corporate tax income tax is paid to the federal government after the end of taxable year based upon the revenue made during that year (U.S. Congressional Budget Office, 2009).
Social security taxes are imposed on employed individuals to the federal government for their future social security benefits. Revenues obtained from individual income taxes were 8.1 percent of gross domestic product (GDP) in 2008, whereas in 2009 it dropped to 7.4 percent of GDP or almost 45 percent of total government revenue. Short term forecasts for individual income taxes revenue lies within 8.3 percent of GDP or approximately 47 percent of total federal government revenue in 2010. Corporate income taxes accounted for 2.1 percent of GDP in 2008 and 1.6 percent of GDP in 2009 or approximately 10 percent of total federal government revenues in 2009.
Receipts from social insurance taxes which is the second biggest source of federal government have been highly stable comparative to the size of economy fluctuating between 6.2% and 6.8% of gross domestic product since mid 1980s.Over the last 50 years the composition of revenues earned through taxes has shifted, with individual income taxes revenue growing and corporate tax incomes declining as a share of the total. Individual income taxes have constantly offered almost half of overall federal revenue since 1950, while revenues from corporate income tax and social security taxes have waned and waxed (U.S. Congressional Budget Office 2009).
The three major categories of federal government expenditures
The major categories of expenditure for the federal government are social security, Medicare and Medicaid and defense department expenditures. Medicare and Medicaid expenditures are used in the funding of health insurance coverage to individuals aged sixty five years and above. Social security expenditures are used in funding social insurance and social welfare programs. Defense expenditure is allocated to U.S department of defense for execution of military activities and operations. Expenditures are grouped as mandatory when payments are needed by particular laws, and discretionary, when the payment amounts are renewed yearly as part of budget process (U.S. Congressional Budget office, 2009).