The US tax system comprises individual and corporate taxes. Other components include estate tax, gift tax, and excise taxes. Out of these, income taxes make up to 50% of the federal revenue. Payroll taxes are the second biggest federal revenue source, after income taxes.
Both individual and corporate income taxes are progressive, meaning that their value is congruent to the earnings. For individuals, income taxes can be withheld from their paychecks, thus simplifying the taxpaying process. Property taxes are usually levied on properties but also expensive vehicles and other valuable objects. Property taxes depend on the estimated value of the object and are typically administered by local authorities. Sales transactions generate general and excise sales taxes. Other taxes include estate tax, gift tax, medicare, and social security tax.
Since the 1862 introduction of the tax law by Lincoln, the most critical reforms include the following:
- 1894 – a 2% income tax was established;
- 1954 – the federal government approved around 3,000 amendments to the Internal Revenue Code;
- 1986 – Reagan’s Tax Reform Act passes, reducing the income tax rate from 50% to 28%;
- 2001 – the Bush administration approved a 10% tax rate for low-income earners;
- 2017 – president Trump reduced the corporate tax and limited deductions on income taxes.
Tax money is invested in the national well-being. Practically speaking, that’s how the government pays the military, government workers, builds more robust infrastructures, and ensures access to education. The federal government adopts and adjusts laws to keep taxation fair to all American citizens. Tax exemptions and income brackets regulate the income tax and simplify the tax code.