Each year on Tax Day, millions of Americans sit down to file their returns—checking deadlines, calculating refunds, or figuring out what they owe. But that annual moment is just the surface of a much larger system that shapes the communities we live in and the economy we depend on every day.
It’s often a moment of realization that a significant portion of every paycheck is redirected to the government. In 2025 alone, the federal government received a total of $5.23 trillion in taxes. Personal income taxes amounted to $2.66 trillion, a little over half of total federal revenue. While that can feel like a burden, it’s also the primary way the services we rely on every day are funded.
WHAT YOUR TAXES ACTUALLY FUND
Taxes fund government services at every level, but where your money goes depends on which level of government is collecting it.
At the federal level: Individual income taxes make up roughly 40–50% of federal revenue, funding programs like Social Security, national defense, and major infrastructure.
At the state and local level: Revenue shifts closer to home. States rely on income and sales taxes, while local governments depend largely on property taxes to fund schools, public safety, and community infrastructure.
THE GREAT BALANCING ACT: FAIRNESS, GROWTH, AND SIMPLICITY
Designing a tax system is a constant balancing act between competing priorities. Recent reforms highlight just how difficult it is to get that balance right.
Fairness: The U.S. uses a progressive tax system, where higher incomes are taxed at higher rates. But debates continue over how high those rates should go, and whether taxing the next dollar earned discourages work, investment, or upward mobility.
Economic growth: Fiscal policies often aim to encourage growth by lowering rates or incentivizing investment. These changes can increase take-home pay and stimulate the economy, but they often come with trade-offs, including reduced government revenue and higher deficits over time.
Simplicity: The complexity of the tax code contributes to the tax gap, the difference between what is owed and what is actually collected, estimated in the hundreds of billions of dollars annually. Advocates for simplification argue that a clearer system builds trust and helps individuals and businesses make more confident decisions.
BEYOND THE STATUS QUO
The conversation around taxes is evolving. Some policymakers are shifting from taxing income to taxing consumption, with the goal of encouraging saving and long-term investment. Others are focused on local reforms, such as taxing land value instead of buildings, to promote more efficient development and address housing shortages.
These ideas reflect a broader question: what behaviors should the tax system encourage and what trade-offs are we willing to accept?
JOIN THE CONVERSATION
With the end of pandemic-era aid, state and local governments face a fiscal reset. Those who used temporary COVID funds to expand programs or spending must now adapt to the funds expiring by adjusting spending or raising additional revenue through taxes. Otherwise, they face running deficits.
Rather than viewing taxes as fixed or distant, you can examine how your money is being used in your community. You might start by comparing how your state approaches taxation or your local government’s spending priorities.
You help decide how your community prioritizes fiscal tradeoffs, as well as what tools are available to address them. Attend a city council meeting, research school bond proposals, or talk to your local elected officials to stay engaged.
To continue the conversation, explore our Taxes Policy Circle Brief for a clear, fact-based overview of the key issues. Bring these questions into your own Circle, because meaningful change often starts with informed, local conversations.
