Taxation

Taxation

Description

In the United States, taxes are imposed at multiple levels for a number of purposes. The government levies the vast majority of taxes in order to provide revenue to operate. But the tax system also can be utilized to compensate the government for using certain of its facilities (‘user fees’), to provide incentives to engage in certain activities, or to penalize those who take certain actions. The federal government of the United States is the world's largest taxing authority, raising hundreds of billions of dollars in taxes every year. The chief source of revenue is the federal income tax imposed on individuals and certain entities. Other federal taxes include estate and gift taxes, excise taxes, and social insurance taxes. The latter, which is now 15.3 percent of salary (one-half paid by the employer and one-half paid by the employee) is used to fund the social security program, to which all employees and employers contribute to provide retirement security and medical insurance. Excise taxes are imposed on many goods, such as tobacco, alcohol, gasoline, telephone service, airplane tickets, and luxury goods. Although a gift tax theoretically is levied on all completed gifts, and an estate tax is levied on the value of property transferred at death, there are very large exemptions, and, thus, those taxes apply only to the very wealthy. Unlike many other industrialized countries, the United States does not have a value added tax. It also does not levy a property tax, a wealth tax, or a sales tax. Each of the fifty states has the power to tax. Most states have an income tax similar to the federal income tax. In addition, many states also impose real property taxes, excise taxes, inheritance taxes and sometimes wealth taxes. State sales taxes are also a significant source of revenue. Many large cities also impose income taxes, as well as sales taxes. Each state or city can impose its own taxes as well as develop its own rules. Most states also tax corporations. Sometimes the tax is an income tax, but often it is a franchise tax, based on the right to be chartered in the state. Although taxes at all levels are significant and may affect how and where business is done, the federal income tax is the most important. It affects not only all United States citizens, residents, and businesses, but also foreign individuals and businesses who have some connection with the United States. Thus, most of the remainder of this chapter is devoted to that tax. The federal estate and gift taxes, which impose taxes on transferred wealth, are described in section XII below.

Source Publication

Fundamentals of American Law

Source Editors/Authors

Alan B. Morrison

Publication Date

1996

Taxation

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