Funds the government raises, specifically from taxes, fees, earnings, and other sources. The government utilizes funds for various state operations.
How General Revenue Works
Governments use general revenue for two primary purposes: covering finances for the citizens' welfare and services and achieving the state's distributive roles. General revenue may come in handy for other purposes, including assisting those with developmental and intellectual disabilities.
In 2020, the US government general revenue was around $3.4 trillion. Taxes typically fund general revenue. Such taxes include:
- Personal Income Tax: The income tax the government imposes on employees' salaries and wages.
- Sales Tax: The tax the government imposes on sales relating to the consumption of goods and services. Retailers levy the sales tax at the purchase point and remit the revenue to the government.
- Tobacco Tax/Cigarette Tax: The tax the government imposes on tobacco products with the ultimate objective of minimizing consumption of the product and bringing revenue to finance government programs.
- Insurance Tax: The tax insurance companies charge gross premiums to cover losses they incur on state obligations.
- Taxes from Corporate Net Income.
Real-Life Examples of General Revenue
General revenue finances social security payments. Analysts note that social security and other government retirement programs will continue taking a significant percentage of the (US) general revenue since people tend to live longer. This means retirees spend more on their retirement.
To illustrate, using today's values and prices, a couple (categorized as average-income), who retired in 1960, would expect to receive approximately $100,000 total in Social Security benefits. In comparison, a couple retiring in 2020 could expect to receive roughly $500,000 in Medicare and Social Security benefits. Some of the ways general revenue relates to social security are as follows:
- Taxation of Benefits: Retired individuals receiving income from sources other than Social Security pay taxes on Social Security benefits. As of 2014, $440 billion was transferred to general revenue.
- Direct Transfers: In rare cases, general revenue has compensated Social Security Trust Funds. This helps to cover changes in policies that would decrease its balance.
- Interest Paid on Bonds: Social Security has many assets that arise from surpluses. Through investment with Treasury bonds, for example, Social Security acquires interest from general revenue.
Significance of General Revenue
General revenue is vital for helping the government meet its budgetary obligations. It helps finance government and social projects, including healthcare, Social Security, medical research, and enhances a conducive economic growth environment.
General revenue helps furnish and maintain important sectors like the public education system. Through the proper utilization of general revenue, the government pays civil and public servants, including those working in the postal service and police sectors.
Overall, general revenue benefits the business community since the latter needs good infrastructure (like roads, electricity, and telephones). This further has a role in improving the citizens' standard of living.
General Revenue vs. Special Revenue Fund
State governments in the US maintain a general revenue and special revenue fund for income and expenses. Both local governments and state governments use general revenue to cater to public expenses. On its part, the special revenue fund involves money that the state or local governments use for specific approved purposes.