What Are the Main Sources of Government Income?

The main sources of government income are income, sales and property taxes and fees. State, county and local governments also receive grant money from the federal government.

Taxes are the largest source of government income. Governments tax a portion of most corporate and personal income. Income taxes are collected either quarterly or annually by state and federal taxing authorities. Governments also tax the sale of goods. Sales taxes are collected by sellers and transferred to the governmental tax authority. County and municipal governments levy a tax on all real property under their jurisdiction with the exception of property owned by nonprofit organizations and other government entities. The amount taxed varies by jurisdiction. Governments also charge fees for certain government services. These include fees for issuing permits and for driving on certain roads, and, like taxes, vary by jurisdiction.

State and local governments also receive money from the federal government in the form of grants. These grants are earmarked for specific purposes. For example, states receive money to fund Medicaid, a program that pays for medical care for qualifying low-income individuals. Cities receive community development block grants, which can be used for numerous purposes, including homeless services, affordable housing development and the elimination of blight.