Future Business Leader Achievments (FBLA) Economics Practice Exam

What is the largest source of revenue for the federal government?

1. Corporate income tax

2. Personal property tax

3. Custom duties

4. Personal income tax

The correct answer is: Personal income tax

The largest source of revenue for the federal government is personal income tax. This tax is levied on the income of individuals and households and constitutes a significant portion of the government's overall revenue. It is a progressive tax, meaning that tax rates increase as income levels rise, which ensures that higher-income earners contribute a larger share of their income compared to lower-income earners. Personal income tax is generated from various sources, including wages, salaries, dividends, and capital gains, making it a versatile and stable revenue source. The importance of personal income tax for government budgeting can be seen in federal budget reports, where it consistently accounts for a majority of total tax revenue. Other types of taxes, such as corporate income tax, personal property tax, and custom duties, contribute to federal revenues but do not match the scale of personal income tax. Corporate income tax impacts businesses based on their profits, while personal property tax typically applies more at the state or local level, and custom duties are related to international trade but represent a smaller fraction of the overall revenue. Hence, personal income tax stands out as the predominant revenue stream in the federal tax system.