T he 115 th Congress has passed legislation that substantially changes the U.S. federal tax system ( H.R. 1 ). The purpose of this report is to provide an overview of the federal tax system, including the individual income tax, corporate income tax, payroll taxes, estate and gift taxes, and federal excise taxes, as in effect through 2017. The Federal Income Tax System

The federal income tax system has several components. The largest component, in terms of revenue generated, is the individual income tax. In fiscal year (FY) 2016, $1.5 trillion, or 47% of the federal government's revenue, came from the individual income tax. The corporate income tax generated another $300 billion in revenue in FY2016, or 9% of total revenue. Social insurance or payroll taxes generated $1.1 trillion, or 34% of revenue in FY2016. Exemptions and Deductions

Tax liability depends on the filing status of the taxpayer. There are four main filing categories: married filing jointly, married filing separately, head of household, and single individual. Other miscellaneous expenses can be deducted in excess of 2% of AGI. Higher-income individuals with a high ratio of exemptions and deductions to income may be subject to the alternative minimum tax (AMT). Tax Credits

After a taxpayer's tax liability has been calculated, tax credits are subtracted from gross tax liability to arrive at a final tax liability (see Figure 4 ). A two-tiered rate structure of 26% and 28% is assessed against AMT taxable income. Social Insurance and Retirement Payroll Taxes

Payroll taxes are used to fund specific programs, largely Social Security and Medicare. In 2017, the tax applies to the first $127,200 in wages. This wage base is adjusted annually for inflation. Payroll taxes are also regressive, with higher-income taxpayers paying a smaller share of their income in payroll taxes than lower-income taxpayers. Federal excise taxes are levied on a variety of products. For some goods, taxes are collected at the production level. Revenues in 2016 were 17.8% of GDP, slightly above the post-World War II average of 17.3% of GDP. Since the mid-1940s, the individual income tax has been the most important single source of federal revenue (business income may also be taxed under the individual income tax system, as discussed above in " The Individual Income Tax "). Composition of Tax Revenue

The changing shares of federal revenues over time are more clearly shown in Figure 7 . The Distribution of the Tax Burden

The U.S. tax system is generally progressive. Four countries tend to have lower taxes as a percentage of GDP than the United States, with most others tending to have higher taxes relative to the size of the economy. Concluding Remarks

H.R. 1 includes broad changes to the federal tax system after the 2017 tax year. This report provides an overview of the federal tax system, as in effect in 2017. Changes to the federal tax system enacted in the 115 th Congress will be addressed in subsequent CRS products.
The 115th Congress has passed legislation that substantially changes the U.S. federal tax system (H.R. 1). This report describes the federal tax structure, provides some statistics on the tax system as a whole, as of 2017.
Historically, the largest component of the federal tax system, in terms of revenue generated, has been the individual income tax. In fiscal year (FY) 2016, $1.5 trillion, or 47% of the federal government's revenue, was collected from the individual income tax. The corporate income tax generated another $300 billion in revenue in FY2016, or 9% of total revenue. Social insurance or payroll taxes generated $1.1 trillion, or 34% of revenue in FY2016. Revenues in 2016 were 17.8% of GDP, slightly above the post-World War II average of 17.3%.
The federal individual income tax is levied on an individual's taxable income, which is adjusted gross income (AGI) less deductions and exemptions. Tax rates based on filing status (e.g., married filing jointly, head of household, or single individual) determine the level of tax liability. Tax rates in the United States are generally progressive, such that higher levels of income are typically taxed at higher rates. Once tentative tax liability is calculated, tax credits can be used to reduce tax liability. Tax deductions and tax credits are tools available to policymakers to increase or decrease the after-tax price of undertaking specific activities. Individuals with high levels of exemptions, deductions, and credits relative to income may be required to file under the alternative minimum tax (AMT).
Corporate taxable income is also subject to varying rates, where those with higher levels of income pay higher levels of taxes. Social Security and Medicare tax rates are, respectively, 12.4% and 2.9% of earnings. In 2017, Social Security taxes are levied on the first $127,200 of wages. Medicare taxes are assessed against all wage income. Federal excise taxes are levied on specific goods, such as transportation fuels, alcohol, and tobacco.
Looking at the tax system as a whole, several observations can be made. Notably, the composition of revenues has changed over time. Corporate income tax revenues have become a smaller share of overall tax revenues over time, while social insurance revenues have trended upwards as a share of total revenues. Social insurance revenues are a sizable component of the overall federal tax system. Most taxpayers pay more in payroll taxes than income taxes. Many taxpayers pay social insurance taxes but do not pay individual income taxes, having incomes below the amount that would generate a positive income tax liability. From an international perspective, the U.S. federal tax system tends to collect less in federal revenues as a percentage of GDP than other OECD countries.
This report reflects the tax system as in effect in 2017. H.R. 1, the 2017 tax revision, as passed in both the House and Senate, substantially modifies the federal tax system. The purpose of this report is to review the federal tax system in 2017. Any changes to the federal tax system enacted in the 115th Congress will be explored in subsequent reports and other CRS products.