Federal Taxation

The Constitution gives Congress the power to lay and collect taxes, duties, imposts, and excises, and for more than a century the federal government relied mainly on tariffs and excise taxes. A Civil War income tax expired, and in 1895 the Supreme Court struck down a peacetime income tax in Pollock v. Farmers' Loan and Trust Co. The Sixteenth Amendment, ratified on February 3, 1913, authorized an income tax without apportionment among the states, and withholding from paychecks, adopted in 1943, turned it into a mass tax.

Individual income taxes now provide about half of federal revenue, payroll taxes for Social Security and Medicare about a third, and corporate income taxes roughly a tenth, with excise, estate, and customs duties making up the rest. Tax laws must originate in the House, where the Ways and Means Committee writes them, and the Senate Finance Committee handles them in the Senate, with revenue estimates from the Joint Committee on Taxation. The Treasury Department and the Internal Revenue Service administer the tax code, and the Tax Court and federal courts resolve disputes.

Major tax laws in recent decades include the Tax Reform Act of 1986, the 2001 and 2003 tax cuts, the Tax Cuts and Jobs Act of 2017, and the reconciliation law signed on July 4, 2025, which made most of the expiring 2017 individual tax cuts permanent and added new deductions. Customs revenue rose sharply in 2025 as new tariffs took effect. Supporters of lower taxes say they promote growth and leave more money with households and businesses, while critics say recent cuts mainly benefit higher earners and add trillions to federal deficits.