mirror of
https://github.com/nhammer514/textfiles-politics.git
synced 2024-10-01 01:15:38 -04:00
337 lines
20 KiB
HTML
337 lines
20 KiB
HTML
<html xmlns="http://www.w3.org/1999/xhtml">
|
|
<head>
|
|
<title>inc-tax</title>
|
|
<link rel="stylesheet" href="../CSSstyle.css"/>
|
|
<!--Fill in your link line for CSS and JS in the XSLT here! -->
|
|
</head>
|
|
<body>
|
|
<h1 id="title-index">inc-tax</h1>
|
|
<div id="conspiracy">
|
|
<p>*** NOTE: Excerpted from the Academic American Encyclopedia (electronic) ***</p>
|
|
<p>TITLE(s): income tax
|
|
The income tax is a levy based on the income of individuals, families, and
|
|
corporations.
|
|
|
|
The income tax is the largest source of tax revenue in advanced
|
|
economies. In the United States over half of the federal government's tax
|
|
revenue comes from income taxes, with the personal income tax accounting for
|
|
about 45% and the corporate income tax for another 10% of the total tax
|
|
revenue. Most individual states and some local governments also levy income
|
|
taxes, but income taxes are less important than other sources of state tax
|
|
revenue.
|
|
|
|
An income tax was first instituted in Britain on a permanent basis in
|
|
1842. The United States did not use an income tax until 1861, as a temporary
|
|
measure to help finance the Civil War; that tax was repealed in 1871. When
|
|
Congress tried to reinstate the income tax, the Supreme Court, in POLLOCK V.
|
|
FARMERS' LOAN AND TRUST CO. (1895), declared that it was unconstitutional.
|
|
|
|
The 16TH AMENDMENT to the U.S. Constitution, ratified in 1913, consists of
|
|
a single sentence that allows income taxation. The 1913 income tax exempted
|
|
the first $3000 from taxation and taxed the remainder of income at graduated
|
|
rates ranging from 1% for income up to $20000 to as high as 7% for income
|
|
over $500000. This was sufficiently high relative to income at the time
|
|
that less than 1% of the population was subject to the income tax then.
|
|
|
|
The initial passage of the law established a progressive tax structure,
|
|
which means that taxpayers are taxed at a higher percentage rate the higher
|
|
their incomes are. A proportional tax would collect at the same percentage
|
|
rate for all incomes, and a regressive tax collects a smaller percent of
|
|
income for higher incomes. The tax structure in the United States has
|
|
remained progressive since the tax was established, although specific rates
|
|
have varied greatly.
|
|
|
|
From an initial top rate of 7% in 1913, the top rate rose to 77% by 1918
|
|
to help finance world war I. The top rate fell to 25% from 1925 to 1928, but
|
|
by 1936 had risen again to 78%. The highest top bracket was 94% in 1944 and
|
|
1945 to help finance World War II, and it remained above 90% in the early
|
|
1960s until it was reduced to 70% by the tax act of 1964. In 1981 the top
|
|
rate was reduced to 50%, and it was reduced again by the Tax Reform Act of
|
|
1986. Effective in 1991 the top rate was 31%.
|
|
|
|
One of the most significant events in the history of the U.S. income tax
|
|
was the introduction of withholding during World War II. Prior to
|
|
withholding, individuals were responsible for sending their tax payments to
|
|
the government. Withholding, however, requires employers to deduct a part of
|
|
an employee's pay and send it directly to the government to cover the
|
|
employee's estimated income taxes. At the end of the year, the income
|
|
earner computes the income tax due and either pays any additional amount or
|
|
receives a refund from the government for payments in excess of the tax due.
|
|
The withholding system makes it much easier for the government to collect
|
|
taxes and makes evasion more difficult.
|
|
|
|
THE PERSONAL INCOME TAX
|
|
|
|
The amount of personal income tax due is computed in several steps.
|
|
First, total income from all sources is added together. Certain types of
|
|
income are not included in income for tax purposes; these are called
|
|
exemptions. Examples include a personal exemption for the taxpayer and for
|
|
individuals who are supported by the taxpayer's income, and for employee
|
|
business expenses such as the cost of travel for a traveling salesperson.
|
|
Total income minus exemptions equals adjusted gross income.
|
|
|
|
Taxpayers then subtract deductions from adjusted gross income to compute
|
|
taxable income. Items that can be deducted include home-mortgage interest
|
|
payments and charitable contributions. In lieu of itemizing these deductions,
|
|
taxpayers can choose to take a standard deduction; exemptions, therefore,
|
|
can be more valuable to taxpayers than deductions because exemptions can be
|
|
taken even if other deductions are not itemized.
|
|
|
|
The tax due is computed from taxable income according to the tax rate
|
|
schedule. An important concept in income taxation is the distinction between
|
|
the average and marginal rates of taxation. The average rate is the fraction
|
|
of income paid in taxes. The marginal rate is the fraction of any additional
|
|
income that would have to be paid in taxes. The average and marginal rates
|
|
are not the same because, first, some income is not taxed--due to
|
|
exemptions, deductions, and credits; and, second, the progressive tax
|
|
schedule taxes lower levels of income at a lower rate than higher levels of
|
|
income. </p>
|
|
<p> The Tax Reform Act of 1986 simplified the tax structure and reduced the
|
|
total number of tax brackets to four. Lowest-income taxpayers had an income
|
|
tax rate of 15%, and as income rose, the marginal tax rate rose to 28%, then
|
|
to 33%, and then back down to 28%. For the first time in the history of the
|
|
income tax, the taxpayers with the highest incomes were not in the highest
|
|
tax bracket. In 1991 the two top brackets were combined and the tax rate
|
|
for that bracket was set at 31 percent. This reduced the number of tax
|
|
brackets to three, with marginal tax rates of 15, 28, and 31%.
|
|
|
|
The complexities of the tax code are the result of the attempt to achieve
|
|
a number of goals in its design. The first goal is fairness, and, with the
|
|
income tax, fairness is generally interpreted to mean that taxpayers should
|
|
be taxed in proportion to their ability to pay. In trying to implement the
|
|
ability-to-pay principle, the tax code taxes single taxpayers more than
|
|
married taxpayers with nonworking spouses, but taxes married couples who
|
|
both work more than if they both were single. Families with children also
|
|
pay less in an attempt to tax the same amount for those with equal abilities
|
|
to pay. The progressive nature of the tax code implements the ability-to-pay
|
|
principle by suggesting that those with more income have a
|
|
more-than-proportional ability to pay. How progressive the tax code should
|
|
be, however, is a matter of debate.
|
|
|
|
A second goal of the tax code is efficiency, which means collecting a
|
|
given amount of tax revenue at the least cost. The efficiency of the tax is
|
|
affected by the costs of collection, such as the cost of filling out forms,
|
|
having the government monitor payments, and so on. Efficiency is also
|
|
influenced by the incentives that an income tax introduces against earning
|
|
taxable income. Higher tax rates provide an incentive for taxpayers to work
|
|
less to do their own work rather than hire someone else who will have to pay
|
|
income tax, and to cheat by not reporting income. These incentives can be
|
|
minimized by keeping tax rates low, so the goal of efficiency conflicts with
|
|
the equity goal of progressive taxation.
|
|
|
|
Historically, the tax code has also been used to further other goals by
|
|
providing tax incentives. Home-mortgage interest can be deducted from
|
|
taxable income, creating an incentive for home ownership. Charitable
|
|
contributions can be deducted, providing an incentive for charitable giving.
|
|
The use of the tax system to provide these kinds of incentives is
|
|
controversial, and the Tax Reform Act of 1986 eliminated many incentives of
|
|
this type. </p>
|
|
<p> THE CORPORATE INCOME TAX
|
|
|
|
In 1960 the corporate income tax comprised 23.2% of federal tax revenues,
|
|
but had fallen to 12.5 percent of federal tax revenues by 1980, due to the
|
|
effects of tax reform undertaken in the 1960s and 1970s. The decline
|
|
resulted from corporations being able to shelter more income from taxation
|
|
through credits, exemptions, and deductions. Because of the 1981 tax reform,
|
|
corporate income tax collections made up only 6.2% of federal tax revenues
|
|
in 1983, in large part because the 1981 tax act allowed more favorable
|
|
treatment of depreciation. The Tax Reform Act of 1986 contained measures to
|
|
increase the contribution of corporate income taxes to total federal taxes,
|
|
and by 1989 corporate income tax collections made up more than 11% of federal
|
|
tax revenue.
|
|
|
|
Taxable income for corporations is computed by subtracting allowable
|
|
expenses from income, but from 1960 to the mid-1980s a greater range of
|
|
expenses was being allowed. An investment tax credit allowed the reduction
|
|
of tax payments by 10% of investment expenditures, and firms were permitted
|
|
to write off large depreciation expenses to lower their taxes. The Tax
|
|
Reform Act of 1986 reduced corporate income tax rates, but corporations must
|
|
pay taxes on more of their income, since less can be deducted. As a result,
|
|
corporate income tax collections as a share of total federal taxes have
|
|
increased by more than 80 percent.
|
|
|
|
One controversy regarding corporate tax rates is who actually ends up
|
|
paying the tax. Corporations may raise their prices to cover the corporate
|
|
income taxes they pay, which would mean that the tax is actually paid by the
|
|
corporation's customers rather than by the corporation itself. If the
|
|
corporation did not raise its prices to cover the tax, then the tax would
|
|
lower corporate profits, so that the stockholders of the corporation would
|
|
end up paying the tax. Since insurance companies and pension plans own large
|
|
blocks of stock, the corporate income tax may fall heavily on those
|
|
industries and their customers. Economists agree that the tax is ultimately
|
|
paid from all of these groups, but there is no agreement on who pays how
|
|
much.
|
|
|
|
Another controversy regarding the corporate income tax is the issue of
|
|
double taxation. A tax on corporate income taxes the stockholder several
|
|
times because corporations pay income tax on the money they pay out as
|
|
dividends and then the recipient of the dividend must pay personal income tax
|
|
on the dividend. Furthermore, stock is bought with after-tax income, then,
|
|
when the stockholder is paid a dividend from the corporation or sells the
|
|
stock at a profit, the income earned is taxed again. Some people argue that
|
|
corporate income should not be taxed in order to avoid double taxation, while
|
|
others argue that those who earn corporate income can best afford to pay
|
|
taxes. The question is closely related to the issue of who ultimately pays
|
|
the corporate income tax, since corporations really only collect taxes that
|
|
are paid by individual stockholders and customers.
|
|
|
|
TAX POLICY AND TAX REFORM
|
|
|
|
Originally, the income tax was seen solely as a method of raising revenue,
|
|
but since World War II it has been used as a tool for furthering other goals
|
|
as well. In 1964 a tax cut designed by Presidents Kennedy and Johnson was
|
|
enacted to help the sagging economy. The logic was that a tax cut would give
|
|
consumers more money to spend, which would stimulate business activity. This
|
|
was the first time that income tax reform was undertaken primarily to try to
|
|
fine-tune the economy. </p>
|
|
<p> President Kennedy also instituted the investment tax credit to encourage
|
|
investment, and throughout the 1960s and 1970s many other tax benefits were
|
|
added to the tax system. Among them were oil depletion allowances that made
|
|
oil exploration more profitable, an energy tax credit that provided an
|
|
incentive for energy-efficient investment, and tax exemptions under certain
|
|
conditions for retirement savings and health insurance. Each change, taken
|
|
by itself, had an individual rationale, but the cumulative effect of such
|
|
reforms was to reduce the amount of income subject to taxation, which
|
|
required higher average rates to raise the same amount of revenue.
|
|
|
|
Throughout the 1960s and 1970s inflation had the effect of continually
|
|
pushing taxpayers into higher income tax brackets, which provided additional
|
|
revenue to compensate for the increase in tax benefits. Inflation provided
|
|
enough additional revenue that rate reductions to partially offset the
|
|
effects of inflation were also common. The 1981 tax reform act contained a
|
|
provision to automatically index tax brackets to offset inflation, making
|
|
this type of tax reform unnecessary.
|
|
|
|
The Tax Reform Act of 1986 was the most comprehensive change in the
|
|
structure of the U.S. income tax since it was enacted. The cumulative effect
|
|
of many small tax reforms over the preceding several decades was to increase
|
|
the number of deductions, credits, and exemptions, which resulted in less
|
|
income being subject to taxation. The 1986 reform was designed to lower tax
|
|
rates while collecting about the same amount of revenue, by eliminating most
|
|
tax preferences and thus increasing the amount of income that could be taxed.
|
|
Reduced tax rates also have the advantages of increasing the incentive to
|
|
earn income, while lowering the incentive for taxpayers to look for tax
|
|
shelters to avoid taxation. One measure of the success of the 1986 tax
|
|
reform is that only minor changes were made to the income tax structure in
|
|
the five years following that reform.
|
|
|
|
Randall G. Holcombe </p>
|
|
<p> Bibliography: Bradford, D. F., Untangling the Income Tax (1986); Davies,
|
|
David G., United States Taxes and Tax Policy (1986); Hall, Robert E., and
|
|
Rabushka, Alvin, The Flat Tax (1985); Holcombe, Randall G., Public Sector
|
|
Economics (1988); Peacock, Alan, and Forte, Frances, eds., The Political
|
|
Economy of Taxation (1981); (1985); Strassels, Paul N., The 1986 Tax Reform
|
|
Act (1987). </p>
|
|
<p>TITLE(s): Treasury, U.S. Department of the
|
|
The U.S.
|
|
|
|
Department of the Treasury is the department of the executive branch of
|
|
government that oversees the nation's finances. The department was created
|
|
in 1789, and its first secretary was Alexander Hamilton. The secretary of the
|
|
treasury is the second-ranking officer (after the secretary of state) in the
|
|
president's cabinet. The secretary is the president's chief advisor on
|
|
fiscal affairs and is responsible for managing the public debt. The law
|
|
requires the secretary to report each year to the Congress on the
|
|
government's fiscal operations and its financial condition. The secretary is
|
|
also involved in financial dealings with other nations. The secretary has
|
|
special staffs dealing with such matters as defense lending, debt analysis,
|
|
financial analysis, international finance, international tax affairs, and
|
|
law-enforcement coordination.
|
|
|
|
The Treasury Department's operating bureaus include the COMPTROLLER OF THE
|
|
CURRENCY, who supervises national banks; the United States Customs Service,
|
|
which collects taxes on goods brought into the country from abroad; the
|
|
Bureau of Engraving and Printing, which produces currency, bonds, Federal
|
|
Reserve notes, and postage stamps; the Bureau of Government Financial
|
|
Operations, which is responsible for the government's cash management
|
|
program and central accounting and reporting system; the Bureau of the Public
|
|
Debt; the INTERNAL REVENUE SERVICE, which collects taxes; the United States
|
|
Mint, which manufactures coinage; the Bureau of Alcohol, Tobacco and
|
|
Firearms, which enforces federal laws on production, use and distribution;
|
|
and the SECRET SERVICE, which protects top U.S. officials and presidential
|
|
candidates and enforces laws against counterfeiting. </p>
|
|
<p> Bibliography: Adams, S., The United States Treasury System (1979);
|
|
Gaines, Tilford C., Techniques of Treasury Debt Management (1962); Gurney,
|
|
Gene and Clare, The United States Treasury: A Pictorial History (1977);
|
|
Taus, Esther R., Central Banking Functions of the United States Treasury,
|
|
1789-1941 (1943; repr. 1966); Walston, M., The Department of the Treasury
|
|
(1989). </p>
|
|
<p>TITLE(s): Internal Revenue Service
|
|
The U.S. government's tax collecting agency, the Internal Revenue Service,
|
|
was created in 1862.
|
|
|
|
However, it did not assume its present shape until the federal power to
|
|
tax incomes was sanctioned by the 16TH AMENDMENT (1913) and revenues
|
|
increased enormously after World War II. The IRS, a division of the
|
|
Department of the Treasury, administers all of the internal revenue laws
|
|
except those relating to alcohol, tobacco, firearms, and explosives; its
|
|
most important assignments are to collect personal and corporate INCOME
|
|
TAXES, <span class="ORG" title="ORG">SOCIAL</span> SECURITY taxes, and excise, estate, and gift taxes.
|
|
|
|
The IRS seeks to obtain voluntary compliance with the tax laws as far as
|
|
possible. To this end it stresses communication with taxpayers by providing
|
|
assistance and information for those who need it. Most of the approximately
|
|
118000 employees of the IRS work in field offices throughout the country.
|
|
There are 7 regions, each headed by a regional commissioner, and 64 districts
|
|
administered by district directors. Tax returns are processed in separate
|
|
tax service centers. The national office in Washington, D.C., develops
|
|
policies and supervises the field organization.
|
|
|
|
By the early 1980s the IRS was confronting increasing tax evasion and
|
|
taxpayer resistance, fueled by perceptions that the tax laws were unfair and
|
|
administered unfairly. The IRS must interpret the tax laws through the
|
|
regulations it issues, although the IRS is not responsible for writing the
|
|
laws themselves. Despite a massive overhaul of the tax system in 1986, the
|
|
IRS's interpretations are regularly challenged in cases brought to the U.S.
|
|
TAX COURT; and, in adjudication, IRS tax assessments are sometimes rejected.
|
|
It is, however, often possible for businesses and individuals to negotiate
|
|
settlements directly with the IRS.
|
|
|
|
Another source of taxpayer unhappiness is the complexity of many of the
|
|
tax forms. They are often so cumbersome and difficult to understand that
|
|
ordinary taxpayers may require the services of an accountant merely to file a
|
|
tax return.
|
|
|
|
In its efforts to discover tax evaders, the IRS has invested in
|
|
computerized systems that allow it to gather information from many different
|
|
sources and match it with data in its own files, in order to root out, for
|
|
example, individuals whose life-styles indicate larger incomes than their tax
|
|
returns list. Thus, the IRS can collect information from the 50 states on
|
|
automobile and boat registration, professional licenses issued, and business
|
|
activities that require state permits. It has also attempted to buy
|
|
computerized lists from private marketing organizations. Such activities
|
|
have raised questions relating to the issue of invasion of privacy.
|
|
|
|
IRS information has been used by other state and government agencies. In
|
|
most cases--the enforcement of child-support laws, for example, or the
|
|
attempt to find those who have defaulted on student loans--the disclosure of
|
|
information has been authorized by Congress. </p>
|
|
<p> Bibliography: Burnham, David: A Law unto Itself: Power, Politics, and the
|
|
IRS (1990); Saltzman, Michael, IRS Practice and Procedures (1981);
|
|
Shafiroff, I., Internal Revenue Service Practice and Procedure Deskbook, 2d
|
|
ed. (1989). </p>
|
|
<p>TITLE(s): Tax Court, U.S.
|
|
The United States Tax Court is a court of the federal government that
|
|
hears cases brought by taxpayers who challenge decisions of the Internal
|
|
Revenue Service (IRS) dealing with overpayment or underpayment of taxes.
|
|
|
|
In many instances the decisions of the U.S. Tax Court can be appealed to
|
|
the U.S. Court of Appeals and ultimately to the Supreme Court. When
|
|
taxpayers exercise an option to agree to the use of simplified court
|
|
procedures in disputes involving $10000 or less, however, the cases tried
|
|
under these procedures cannot be appealed to a higher court. The U.S. Tax
|
|
Court also decides disputes over the rights of taxpayers to see documents and
|
|
other materials that are related to their cases and that are contained in
|
|
IRS files.
|
|
|
|
The court is composed of 19 judges appointed for life and 17 special trial
|
|
judges appointed by the chief judge who serve at the pleasure of the court.
|
|
It is augmented by retired judges when the case load is heavy. The court's
|
|
offices are in Washington, D.C., but it maintains a field office in Los
|
|
Angeles and holds trial sessions throughout the United States. </p>
|
|
<p> Bibliography: Taylor, M. W., and Simonson, K. J., Tax Court Practice, 7th
|
|
ed. (1990). </p>
|
|
</div>
|
|
</body>
|
|
</html>
|