income tax

Examples of income tax in the following topics:

• Federal Income Tax Rates

  • Federal income tax is levied on the income of individuals or businesses, which is the total income minus allowable deductions.
  • Federal income tax is levied on the income of individuals or businesses.
  • When the tax is levied on the income of companies, it is often called a corporate tax, corporate income tax or profit tax.
  • Individual income taxes often tax the total income of the individual, while corporate income taxes often tax net income.
  • This tax was repealed and replaced by another income tax in 1862.

• The 16th Amendment

  • The Sixteenth Amendment to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on Census results.
  • The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

• The Federal Tax System

  • These include taxes on income, payroll, property, sales, imports, estates and gifts, as well as various fees.
  • Citizens and residents are taxed on worldwide income and allowed a credit for foreign taxes.
  • Income subject to tax is determined under tax rules, not accounting principles, and includes almost all income.
  • Federal tax rates vary from 10% to 35% of taxable income.
  • Employers also must withhold income taxes on wages.

• Tax Loopholes and Lowered Taxes

  • A more recent study estimates the 2008 tax gap in the range of $450-500 billion, and unreported income to be approximately $2 trillion.
  • Tax evasion is an activity commonly associated with the underground economy, and one measure of the extent of tax evasion is the amount of unreported income, namely the difference between the amount of income that should legally be reported to the tax authorities and the actual amount reported, which is also sometimes referred to as the "tax gap. "
  • These include taxes on income, payroll, property, sales, imports, estates, and gifts, as well as various fees.
  • Similarly, those who are self-employed or run small businesses may not declare income and evade the payment of taxes.
  • This graph shows the revenue the U.S. government has made purely from income tax, in relation to all taxes.

• Deficit Spending, the Public Debt, and Policy Making

  • Because the government draws its income from much of the population, government debt is an indirect debt of the taxpayers.
  • Deficit spending occurs when government spending exceeds tax receipts.
  • In the United States, taxes are imposed on net income of individuals and corporations by the federal, most state, and some local governments.
  • Democrats and Republicans mean very different things when they talk about tax reform.
  • Democrats argue for the wealthy to pay more via higher income tax rates, while Republicans focus on lowering income tax rates.

• Privatization

  • Democratic U.S. presidential candidate John Kerry criticized U.S. firms that outsource jobs abroad or that incorporate overseas in tax havens to avoid paying their "fair share" of U.S. taxes during his 2004 campaign, calling such firms "Benedict Arnold corporations. "
  • Another given rationale is the high corporate income tax rate in the U.S. relative to other OECD nations, and the uncommonness of taxing revenues earned outside of U.S. jurisdiction.
  • For example, the amount of corporate outsourcing in 1950 would be considerably lower than today, yet the tax rate was actually higher in 1950.
  • It is argued that lowering the corporate income tax and ending the double-taxation of foreign-derived revenue (taxed once in the nation where the revenue was raised, and once from the U.S.) will alleviate corporate outsourcing and make the U.S. more attractive to foreign companies.
  • However, while the US has a high official tax rate, the actual taxes paid by US corporations may be considerably lower due to the use of tax loopholes, tax havens, and "gaming the system. " Rather than avoiding taxes, outsourcing may be mostly driven by the desire to lower labor costs (see standpoint of labor above).

• Health Care Reform

  • The threshold for claiming medical expenses on itemized tax returns is raised from 7.5% to 10% of adjusted gross income.
  • The Federal Insurance Contributions Act tax (FICA) is raised to 2.35% from 1.45% for individuals earning more than $200,000 and married couples with incomes over $250,000.
  • The tax is imposed on some investment income for that income group.
  • A 2.9% excise tax is imposed on the sale of medical devices.
  • Healthcare tax credits become available to help people with incomes up to 400 percent of poverty purchase coverage on the exchange.

• Fiscal Policy and Policy Making

  • Changes in the level and composition of taxation and government spending can impact the following variables in the economy: (1) aggregate demand and the level of economic activity; (2) the pattern of resource allocation; and (3) the distribution of income.
  • Government spending is fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic activity.
  • Expansionary fiscal policy, which involves government spending exceeding tax revenue, and is usually undertaken during recessions.
  • Even with no changes in spending or tax laws at all, cyclic fluctuations of the economy cause cyclic fluctuations of tax revenues and of some types of government spending, which alters the deficit situation; these are not considered to be policy changes.
  • Therefore, for purposes of the above definitions, "government spending" and "tax revenue" are normally replaced by "cyclically adjusted government spending" and "cyclically adjusted tax revenue".

• Fiscal Policy

  • Changes in the level and composition of taxation and government spending can impact the following variables in the economy: aggregate demand and the level of economic activity; the pattern of resource allocation; and the distribution of income.
  • Expansionary fiscal policy involves government spending exceeding tax revenue, and is usually undertaken during recessions.
  • However, these definitions can be misleading as, even with no changes in spending or tax laws at all, cyclic fluctuations of the economy cause cyclic fluctuations of tax revenues and of some types of government spending, altering the deficit situation; these are not considered to be policy changes.
  • One school of fiscal policy developed by John Maynard Keynes suggests that increasing government spending and decreasing tax rates are the best ways to stimulate aggregate demand, and only to decrease spending & increase taxes after the economic boom begins.
  • In the classical view, the expansionary fiscal policy also decreases net exports, which has a mitigating effect on national output and income.

• The Middle Class

  • Household incomes commonly exceed $100,000.
  • Though they enjoy a reasonably comfortable standard of living, they are often threatened by taxes and inflation.
  • Another challenge to the stability of the middle class within the United States is increasing income inequality, as middle class Americans have seen their incomes increase at a much slower rate than the wealthiest 1% in the country .