tax system. ==History== Before 1776, the American Colonies were subject to taxation by Great Britain and also imposed local taxes.
These combined income and property tax characteristics, and the income element persisted after 1776 in a few states.
The United States Constitution, adopted in 1787, authorized the federal government to lay and collect taxes, but required that some types of tax revenues be given to the states in proportion to population.
Tariffs were the principal federal tax through the 1800s. By 1796, state and local governments in fourteen of the 15 states taxed land.
Tariffs were the principal federal tax through the 1800s. By 1796, state and local governments in fourteen of the 15 states taxed land.
The War of 1812 required a federal sales tax on specific luxury items due to its costs.
However, internal taxes were dropped in 1817 in favor of import tariffs that went to the federal government.
Several states adopted income taxes in 1837.
Many states refer to some extent to federal concepts for determining taxable income. ===History of the income tax=== The first Income tax in the United States was implemented with the Revenue Act of 1861 by Abraham Lincoln during the Civil War.
Wisconsin adopted a corporate and individual income tax in 1911, and was the first to administer the tax with a state tax administration. The first federal income tax was adopted as part of the Revenue Act of 1861.
In 1895 the Supreme Court ruled that the U.S.
However, the increasing importance of intangible property, such as corporate stock, caused the states to shift to other forms of taxation in the 1900s. Income taxes in the form of "faculty" taxes were imposed by the colonies.
Wisconsin adopted a corporate and individual income tax in 1911, and was the first to administer the tax with a state tax administration. The first federal income tax was adopted as part of the Revenue Act of 1861.
The Pollock decision was overruled by the ratification of the Sixteenth Amendment to the United States Constitution in 1913, and by subsequent U.S.
In 1913, the Sixteenth Amendment to the United States Constitution was ratified, permitting the federal government to levy an income tax on both property and labor. The federal income tax enacted in 1913 included corporate and individual income taxes.
Tax rates were changed in 34 of the 97 years between 1913 and 2010.
The rate structure has been graduated since the 1913 act. The first individual income tax return Form 1040 under the 1913 law was four pages long.
In 1915, some Congressmen complained about the complexity of the form.
However, as of the beginning of World War II, only two cities (New York and New Orleans) had local sales taxes. The Federal Estate Tax was introduced in 1916, and Gift Tax in 1924.
In 1918 the income tax law was expanded to include a foreign tax credit and more comprehensive definitions of income and deduction items.
In 1921, Congress considered but did not enact replacement of the income tax with a national sales tax. By the 1920s, many states had adopted income taxes on individuals and corporations.
In 1921, Treasury Secretary Andrew Mellon engineered a series of significant income tax cuts under three presidents.
In 1921, Congress considered but did not enact replacement of the income tax with a national sales tax. By the 1920s, many states had adopted income taxes on individuals and corporations.
However, as of the beginning of World War II, only two cities (New York and New Orleans) had local sales taxes. The Federal Estate Tax was introduced in 1916, and Gift Tax in 1924.
Various aspects of the present system of definitions were expanded through 1926, when U.S.
Payroll taxes have dramatically increased as a share of federal revenue since the 1950s, while corporate income taxes have fallen as a share of revenue.
This was reorganized and somewhat expanded in 1954, and remains in the same general form. Federal taxes were expanded greatly during World War I.
Significant tax cuts for corporations and all individuals were enacted during the second Bush presidency. In 1986, Congress adopted, with little modification, a major expansion of the income tax portion of the IRS Code proposed in 1985 by the U.S.
Significant tax cuts for corporations and all individuals were enacted during the second Bush presidency. In 1986, Congress adopted, with little modification, a major expansion of the income tax portion of the IRS Code proposed in 1985 by the U.S.
The thousand-page Tax Reform Act of 1986 significantly lowered tax rates, adopted sweeping expansions of international rules, eliminated the lower individual tax rate for capital gains, added significant inventory accounting rules, and made substantial other expansions of the law. Federal income tax rates have been modified frequently.
These taxes remained under 1% of government revenues through the 1990s. All governments within the United States provide tax exemption for some income, property, or persons.
Tax cuts were provided during the Bush administration, and were extended in 2010, making federal income taxes less progressive. ===Tax evasion=== The Internal Revenue Service estimated that in 2001, the tax gap was $345 billion.
Jr.; et al., South-Western Federal Taxation, 2013 edition Pratt, James W.; Kulsrud, William N.; et al, Federal Taxation", 2013 edition (cited above as Pratt). Whittenberg, Gerald; Altus-Buller, Martha; and Gill, Stephen, Income Tax Fundamentals 2013, Hellerstein, Jerome R., and Hellerstein, Walter, State and Local Taxation: Cases and Materials, 2005, Reference works: CCH U.S.
The tax gap in 2006 was estimated to be $450 billion.
Only a small percentage of returns (about 1% of individual returns in IRS FY 2008) are examined each year.
The tax gap two years later in 2008 was estimated to be in the range of $450–$500 billion and unreported income was estimated to be approximately $2 trillion.
For 2009, the typical maximum tax per employee was under $1,000.
In 2010, taxes collected by federal, state, and municipal governments amounted to 24.8% of GDP.
Tax cuts were provided during the Bush administration, and were extended in 2010, making federal income taxes less progressive. ===Tax evasion=== The Internal Revenue Service estimated that in 2001, the tax gap was $345 billion.
Tax rates were changed in 34 of the 97 years between 1913 and 2010.
Master Tax Guide, 2010 RIA Federal Tax Handbook 2010 Popular publications (annual): J.K.
Lasser's Your Income Tax for 2010 ==External links== Tariffs applied by the United States as provided by ITC's Access Map', an online database of customs tariffs and market requirements. Tax policy of the United States
These include Social Security and Medicare taxes imposed on both employers and employees, at a combined rate of 15.3% (13.3% for 2011 and 2012).
For 2011, the employee's contribution was reduced to 4.2%, while the employer's portion remained at 6.2%.
Rates based on value vary from zero to 20% in the 2011 schedule.
These taxes are computed as the taxable amount times a graduated tax rate (up to 35% in 2011).
The estate and gift taxes are also reduced by a "unified credit" equivalent to an exclusion ($5 million in 2011).
property by nonresident aliens, most gifts of any property by citizens or residents, in excess of an annual exclusion ($13,000 for gifts made in 2011) per donor per donee.
Therefore, 18–19 percent of total reportable income was not properly reported to the IRS. ==Economics== According to a 2011 study, the U.S.
These include Social Security and Medicare taxes imposed on both employers and employees, at a combined rate of 15.3% (13.3% for 2011 and 2012).
Customs and Border Protection booklet Importing into the United States IRS website Links to state websites Customs and Border Patrol website Alcohol and Tobacco Tax website Law & regulations: Federal tax law, 26 USC Code of Federal Regulations, 26 CFR Standard texts (most updated annually): Fox, Stephen C., Income Tax in the USA, 2013 edition Hoffman, William H.
Jr.; et al., South-Western Federal Taxation, 2013 edition Pratt, James W.; Kulsrud, William N.; et al, Federal Taxation", 2013 edition (cited above as Pratt). Whittenberg, Gerald; Altus-Buller, Martha; and Gill, Stephen, Income Tax Fundamentals 2013, Hellerstein, Jerome R., and Hellerstein, Walter, State and Local Taxation: Cases and Materials, 2005, Reference works: CCH U.S.
The states impacted the most by the limit were the tri-state area (NY, NJ, and CT) and California; the average SALT deduction in those states was greater than $17,000 in 2014. The United States is one of two countries in the world that taxes its non-resident citizens on worldwide income, in the same manner and rates as residents; the other is Eritrea.
State taxes are generally treated as a deductible expense for federal tax computation, although the 2017 tax law imposed a $10,000 limit on the state and local tax ("SALT") deduction, which raised the effective tax rate on medium and high earners in high tax states.
State income tax is allowed as a deduction in computing federal income, but is capped at $10,000 per household since the passage of the 2017 tax law.
These exemptions have their roots both in tax theory, federal and state legislative history, and the United States Constitution. ==See also== Internal Revenue Service List of countries by tax rates List of countries by tax revenue as percentage of GDP Tariffs in United States history Tax Cuts and Jobs Act of 2017 Tax resistance in the United States ==References== ==Further reading== Government sources: IRS Publication 17, Your Federal Income Tax U.S.
Social Security tax applies only to the first $132,900 of wages in 2019.
Employees must still file income tax returns and self assess tax, claiming amounts withheld as payments. ===Social Security and Medicare taxes=== Federal social insurance taxes are imposed equally on employers and employees, consisting of a tax of 6.2% of wages up to an annual wage maximum ($132,900 in 2019) for Social Security plus a tax of 1.45% of total wages for Medicare.
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