You are here

Taxes

25 April, 2016 - 09:12

Taxes affect the relationship between real GDP and personal disposable income; they therefore affect consumption. They also influence investment decisions. Taxes imposed on firms affect the profitability of investment decisions and therefore affect the levels of investment firms will choose. Payroll taxes imposed on firms affect the costs of hiring workers; they therefore have an impact on employment and on the real wages earned by workers.

The bulk of federal receipts come from the personal income tax and from payroll taxes. State and local tax receipts are dominated by property taxes and sales taxes. The federal government, as well as state and local governments, also collects taxes imposed on business firms, such as taxes on corporate profits. Figure 27.4 shows the composition of federal, state, and local receipts in a recent year.

media/image362.png
Figure 27.4 The Composition of Federal, State, and Local Revenues
Description
 

Federal receipts come primarily from payroll taxes and from personal taxes such as the personal income tax. State and local tax receipts come from a variety of sources; the most important are property taxes, sales taxes, income taxes, and grants from the federal government. Revenue shares are for 2007.

Source: Bureau of Economic Analysis, NIPA Table 3.2 and 3.3 (December 23, 2008 revision).