Why Are Taxes So High? Federal and State Explained

Taxes are high because the federal government spends roughly $7.4 trillion a year, and more than 60 percent of that is locked in by law before Congress votes on anything else. If you have wondered why taxes are so high, the short answer is that Social Security, Medicare, Medicaid, national defense, and interest on the national debt together consume most of what Washington collects, while state and local governments layer property, income, and sales taxes on top to pay for schools, police, and roads.¹

Mandatory Programs Take the Biggest Share

The single largest driver of federal taxes is mandatory spending, which runs on autopilot under permanent law without a new annual vote. Social Security, established under Title 42 of the U.S. Code, pays retirement, survivor, and disability benefits to everyone who qualifies.² In fiscal year 2026, Social Security alone is projected to cost about $1.69 trillion. Medicare is expected to reach roughly $1.1 trillion, and Medicaid adds another $708 billion.¹

Combined, mandatory spending is projected at about $4.5 trillion in fiscal year 2026, over 60 percent of the entire federal budget.¹ These programs grow automatically as more people become eligible and as health care costs rise. The baby boom generation is still entering retirement. Because the government is legally required to pay these benefits, it has to collect enough tax revenue to cover them or borrow the difference.

Defense and the Rest of Discretionary Spending

Everything Congress approves fresh each year through appropriations bills falls under discretionary spending.³ National defense dominates that category. The FY2026 defense appropriations bill provides roughly $838.7 billion for military operations, personnel, and equipment.⁴ The rest of discretionary spending, projected at about $1.8 trillion overall, covers transportation, education, federal law enforcement, scientific research, and everything else the government funds year by year.

Interest on the National Debt

A rapidly growing slice of your tax dollars pays interest on money the government already borrowed. When federal spending exceeds revenue, the Treasury covers the gap by selling bonds and other securities to investors, who expect regular interest payments in return.⁵ As of early 2026, total outstanding federal debt stands at approximately $38.8 trillion.⁶

The interest bill has ballooned. In fiscal year 2025, the United States paid $970 billion in interest costs, and the Congressional Budget Office projects that figure will reach about $1 trillion in 2026, roughly 3.3 percent of the entire national economy. CBO projects net interest payments will climb to $2.1 trillion a year by 2036.¹ That money does not build roads, fund schools, or pay for health care. It services past borrowing, and it crowds out room in the budget for everything else.

Payroll Taxes Come Out Before Income Tax

Federal income tax is only part of what leaves your paycheck. Payroll taxes, formally called FICA contributions, fund Social Security and Medicare separately and hit every dollar of wages from the first one you earn. The Social Security portion is 6.2 percent of your wages, with your employer paying a matching 6.2 percent.⁷ In 2026, this tax applies to the first $184,500 of earnings.⁸

Medicare adds another 1.45 percent from you and 1.45 percent from your employer, with no earnings cap.⁹ If you earn more than $200,000 in a calendar year, an Additional Medicare Tax of 0.9 percent applies to wages above that threshold. Payroll taxes alone take 7.65 percent from your pay before income tax is calculated, and your employer effectively pays another 7.65 percent on your behalf. Self-employed workers cover both sides, so their total FICA bill is 15.3 percent of net earnings up to the Social Security wage base.

How the Federal Income Tax Adds to the Load

The federal income tax uses a progressive structure, so different portions of your income are taxed at increasing rates as you earn more.¹⁰ For a single filer in 2026, rates run from 10 percent on income up to $12,400 through 37 percent on income above $640,600, with brackets in between at 12, 22, 24, 32, and 35 percent. Married couples filing jointly face the same rates at roughly double the thresholds.¹¹

Moving into a higher bracket does not mean all your income is taxed at the new rate. Only the income above each threshold gets the higher rate; everything below is taxed at the lower rates. Before those rates apply, the standard deduction reduces the amount of income subject to tax. For 2026, it is $16,100 for single filers and $32,200 for married couples filing jointly.¹¹ The deduction is one reason your effective tax rate, meaning the actual share of your total income that goes to income tax, is lower than the top bracket you hit.

State and Local Taxes Stack on Top

Federal taxes are only part of what you pay. State and local governments raise their own revenue for schools, police, fire departments, road maintenance, and water systems, and those layers vary widely by where you live.

Property Taxes

Property taxes are the primary revenue source for most local governments, calculated as a percentage of your property’s assessed value. A large share funds public K-12 schools. Effective property tax rates run from below 0.3 percent of value in some states to above 2 percent in others. When a community votes for better-funded schools or upgraded emergency services, the cost lands directly on property tax bills.

State Income Taxes

Most states impose their own income tax on top of the federal one. Top marginal rates range from zero in states with no income tax at all to above 13 percent in the highest-tax states. Whether your state uses a flat rate or a bracket system, the combined effect with federal income tax can push your total income tax rate well above 40 percent at higher earnings levels.

Sales Taxes

Sales taxes are less visible because they are collected at the register rather than withheld from pay. The nationwide population-weighted average for combined state and local sales tax is about 7.5 percent, and individual areas range from zero to over 11 percent. Sales taxes are regressive: they take a larger share of income from lower earners, who spend most of what they make.

Fuel Taxes

Every gallon of gasoline you buy includes a federal excise tax of 18.4 cents plus a separate state tax that varies widely, from under 9 cents to over 70 cents per gallon.¹² These taxes fund highway construction and maintenance and are built into the pump price rather than listed separately.

Inflation Quietly Raises the Bill

Inflation pushes tax needs upward even when no one votes for a rate increase. When construction materials, fuel, and equipment cost more, every road repair and building project gets more expensive, and governments cannot simply stop maintaining bridges or water systems. Rising prices also raise the cost of the government workforce, since agencies have to lift salaries for police officers, teachers, and public health workers to keep them from leaving for the private sector. At the federal level, cost-of-living adjustments to Social Security benefits are tied to the Consumer Price Index and increase mandatory spending automatically each year. Even if the government provides exactly the same services as last year, the bill grows, and so does the tax revenue needed to cover it.

Why Individuals Carry Most of the Load

Individual income taxes and payroll taxes together account for the vast majority of federal revenue. Individual income taxes alone make up roughly half of all federal collections, and payroll taxes contribute another large share. Corporate income taxes account for a much smaller portion, projected at around 7 percent of total federal revenue for 2026. The federal tax system leans heavily on individual taxpayers to fund government operations, and any shortfall in individual collections has an outsized effect on the deficit. That imbalance is a regular subject of political debate, but the math of who pays does not change: most federal revenue comes directly from individuals through income and payroll taxes.

1
Congressional Budget Office. The Budget and Economic Outlook: 2026 to 2036
2
Office of the Law Revision Counsel. 42 USC Ch. 7 – Social Security
3
House Committee on Appropriations. The Appropriations Committee: Authority, Process, and Impact
4
U.S. Senate Committee on Appropriations. FY26 Defense Bill Summary
5
TreasuryDirect. FAQs About the Public Debt
6
U.S. Treasury Fiscal Data. Debt to the Penny
7
Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax
8
Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet
9
Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
10
Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
11
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
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U.S. Energy Information Administration. How Much Tax Do We Pay on a Gallon of Gasoline