Taxation in the United States

2023 US Federal Revenues

Taxes revenue by source chart history

Government Revenue and spending GDP

U.S. Federal Receipts - FY 2007

US federal effective tax rates by income percentile and component

Taxation in the United States involves payments to four levels of government: local government, regional government, state governments, and the federal government. Taxation policies are determined by elected representatives at each level of government and are implemented to fund government operations, public services, and infrastructure projects. The United States employs a progressive tax system, meaning that the rate of taxation increases as income increases, with several exceptions and variances based on the type of tax.

Types of Taxes

The United States imposes several types of taxes, including but not limited to:

• Income Tax: Levied on individuals, corporations, estates, and trusts. The federal income tax system is progressive, whereas state income tax rates can vary significantly.
• Payroll Tax: Taxes imposed to fund Social Security and Medicare programs, paid partially by employers and partially by employees.
• Sales Tax: A tax on sales of goods and services, collected by retailers and passed on to state and local governments. Not all states impose a sales tax.
• Property Tax: Levied by local governments on real estate property, the revenue of which is used for funding local projects like schools, roads, and public services.
• Estate Tax: A tax on the transfer of the estate of a deceased person. The federal government imposes an estate tax, and some states have their own estate taxes as well.

Federal Taxation

The Internal Revenue Service (IRS) is responsible for collecting taxes and the administration of the Internal Revenue Code. The federal tax system is complex, with taxes not only on income but also on capital gains, dividends, and other investments. Tax deductions and credits are available to individuals and businesses, which can reduce the amount of tax owed.

State and Local Taxation

State and local taxation varies widely across the United States. While all states have some form of taxation, the types and rates of tax differ. Some states, like Florida and Texas, do not impose an income tax, whereas others, like California and New York, have high income tax rates. Local taxes can include property taxes, sales taxes, and other fees and assessments.

Tax Administration and Compliance

Tax compliance in the United States is a significant issue, with the tax code's complexity often cited as a contributing factor. Taxpayers may use professional tax preparation services or software to file their taxes. The IRS offers various resources to assist taxpayers, including online services and taxpayer assistance centers.

Controversies and Reforms

Taxation is a perennially contentious issue in American politics, with debates focusing on the tax system's fairness, efficiency, and complexity. Tax reform efforts, such as the Tax Cuts and Jobs Act of 2017, aim to simplify the tax code, lower tax rates, and eliminate loopholes. However, these efforts often face significant political challenges.

Conclusion

Taxation in the United States is a complex and multifaceted system involving various types of taxes collected by different levels of government. The system's complexity, combined with the diverse economic situations of taxpayers, makes taxation a critical and often debated aspect of American public policy.