US tax system: structure, characteristics and features

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The US tax system is currently one of the most advanced in the world. Due to fees collected from the most economically active sections of society, the main share of the federal budget is provided. America's tax system best represents the capitalist approach to taxation. Due to the variety of types and levels of the latter, as well as various benefits and discounts for vulnerable segments of society, the US National Assembly allows you to correctly distribute the burden on the population and replenish the treasury in a timely manner. You can learn more about how taxes are paid in the United States and what types of payments exist in this article.

A Brief History

Taxes are the main lever by which the state influences the market economy. Taxes account for 90% of all government revenue, so this powerful tool should not be underestimated. The United States, which is a federal state, uses a three-tier tax system. But she appeared, of course, far from immediately.

More Benjamin Franklin, one of the founders of the Declarationindependence, said: "There are two things that cannot be avoided in life: death and taxes." In the 19th century, the state budget was formed from income from the sale of state lands and customs duties. Such a system did not fill the country's treasury very effectively, so several large tax reforms were carried out in the 20th century. During this period, the priority in the state's economic policy was alternately given to the relaxation of tax obligations in order to stimulate the market system, or to increase tax collections to eliminate the budget deficit. In the 60s, J. Kennedy lowered tax rates in order to increase tax collections in the long run. But this measure had only a temporary effect: after a couple of years, the economy again stopped growing, and the military operations in Vietnam led to significant financial instability.

In 1968, the US Congress lowered the income tax somewhat, with positive results. The financial situation has become stable again. During the reign of R. Reagan, several tax laws were adopted. In 1981 and 1986 the income tax rate was again reduced. Nevertheless, the burden on citizens at that time remained quite high, but the effectiveness of social insurance also increased. Still, the Reagan administration failed to completely eliminate the budget deficit, so George W. Bush had to raise income tax. After a long journey, the US tax system has finally come to some degree of balance. By increasing taxes on corporations and introducing a system of tax incentives for the poorAmerica has managed to achieve a model in which the economy is actively developing, and the budget remains full.

The structure of the US tax system

Currently, taxes in the United States are levied at three levels. In the National Assembly of America, all types of taxes are used in parallel. As a result, one person may pay several types of income tax and several types of property tax (for example, at the local and federal levels). Federal taxes, state taxes and local taxes have their own characteristics and principles. Let's take a closer look at them.

1. Federal taxes form the backbone of the US budget. They are the most significant part of all fees in America. At the federal level, income tax, corporate income tax, inheritance tax, customs duties, excise taxes, and social security tax are levied. Federal is calculated on a progressive scale. The first 5800 dollars are not subject to income tax, which makes it possible for the population to gradually increase their income without being distracted by solid deductions. If you receive more than this amount, income tax can range from 10 to 35%. The logic is simple: the more money you get, the more you have to give to the state. However, there are many exceptions to this system: for example, if you own a property with a mortgage and/or take out a student loan, you can get a substantial tax deduction.
2. State taxes are the second link in America's National Assembly. The State Revenue Service has complete independence in matters of fiscal policy and can independently regulate fees on its own.territory. Through these revenues, the states ensure their development. Taxes from the population make up 80% of the total budget, and the rest is provided by grants from the state. The most popular states in America with a high quality of life have quite high tax payments at this level. The first place is occupied by taxes received from sales. Income tax is second in importance, followed by corporate income tax.
3. Municipal taxes in the US occupy a separate level in the National Assembly. Due to these payments, cities add up their budget. However, unlike state taxes, local fees make up only a small portion of city budgets. Most of them get through subsidies and grants. Even the capital of America - Washington - cannot cover all its expenses on its own. The priority tax for local fees is property tax. Its rate ranges from 1 to 3%.

Naturally, such a huge financial layer must be organized by someone. These payments are controlled by the US Department of the Treasury, or rather, the Internal Revenue Service. Tax evasion in America is a fairly serious crime, for which you can spend many years in prison.

Principles of taxation

The US tax system is not in vain considered the most developed and complex in the world. It is based on numerous principles that are consistently observed in the development of new laws and the formation of tax payments.

• The principle of fair taxation guarantees equal rights to all US residents. To eachtaxes are assessed in proportion to their solvency. A poor person in America will never pay as much as a business owner.
• Predominance of direct taxes over indirect ones. US residents are always aware of what accruals will await them next month. Direct taxes account for 70% of all tax revenues.
• The principle of equality of privileges and immunities speaks of equality before state taxes of all citizens, regardless of place of birth.
• Principle of tax immunity for goods and services that take part in interstate commerce. This rule has been confirmed by a number of court decisions. In practice, it looks like this: if you buy milk in the state of Texas and take it to California, then the latter state does not have the right to tax the goods imported into its territory.
• Principle of the rule of law. All taxes imposed on the territory of the United States can be established, repealed or changed only in accordance with the laws prescribed in the Constitution.
• Principle of parallel taxes. Every US citizen pays multiple versions of the same tax. For example, income tax is levied at the federal, local, and state levels. And some types of fuel can be subject to up to five types of excises: federal, state, related universal and specific.
• Principle of publicity: every person in America can find out exactly what his taxes went to. The funds collected by the state can be used exclusively for the purpose of paying off the country's debts, replenishing the state budget, ensuring defense andother actions for the welfare of the United States.

Types of taxes

US state, federal and local taxes can be divided into several types.

1. Personal income tax is the main source of replenishment of the treasury of the United States. It is levied on the personal income of the population, and its percentage depends on the income received by a person.
2. Taxes levied on wages go to social security. They provide an opportunity to receive pensions and payments in case of injuries, disability and other incapacity for work. As in Russia, the final amount of the pension depends on the length of service and wages of the worker, as well as on state policy. The minimum possible contribution is 25-30%. Due to the high rate of injuries at work, states have satellite programs that help with payments to disabled citizens.
3. US income tax applies to corporations and companies that are registered as legal entities. The net profit of the enterprise is subject to taxation. This tax is progressive, which means that it increases as the income of the enterprise increases. Such a system gives room for the development of small and medium-sized businesses.
4. Property taxes in the United States imply the taxation of securities, real estate, houses with a quitrent of 1.5-3%.
5. Fuel tax is included in the price of gasoline.
6. The tax on food and goods is the most obvious for any person who came to the US. Established by state governments. For example, in Pennsylvaniait is 6%. Absolutely all products on store shelves are sold at no extra charge, and you can see the total amount only in the check. Therefore, it is extremely important to know in advance the taxes levied in a particular state in order to avoid unpleasant situations.
7. There are also taxes on medicine. The collected funds go to the implementation of the federal program Medicare. It allows low-income and elderly people who cannot pay for their own treatment to use medical services.

As you can see, the US budget comes from many different sources. Their number can be misleading to an inexperienced person, and even experts often cannot give advice on related areas. But such a system allows you to correctly distinguish between sources of income, and a large number of taxes - to draw up an individual plan for each city and each state.

Income tax

What payroll taxes do US citizens need to pay? Absolutely all residents must pay taxes, even those who live in other countries or have a business outside of America. Income tax in the United States is usually levied at the federal and state levels, and its amount depends on the status of the person and his income. Single parents and widows/widowers receive the most privileges. For married couples, income is considered jointly, and unmarried and unmarried citizens receive a limit that is half as much. For example, for an unmarried young man, wages up to $9,000 would be taxed at 10%. If he begins to receive from 9 to 37 thousand dollars, then he15% will have to be paid. The maximum US income tax rate is 40%.

Where does this fee come from? To establish the rate, all funds that a US resident receives from:

• business activities;
• wage payments;
• receiving benefits and pensions that are paid by private funds;
• sales proceeds;
• government benefits above a certain minimum.

But despite a significant percentage of the income tax rate, it has many benefits. If you do charitable work, pay child care expenses, pay medical expenses, you may be eligible for tax deductions.

Corporate tax

The tax on net or gross income applies to absolutely all corporations in the United States. The Internal Revenue Service carefully monitors the integrity of all companies, and non-payment of taxes in the United States and the creation of offshore companies is punishable by life imprisonment. How is the net profit of the enterprise, on which it must pay tax, determined? To do this, the following costs are deducted from the total amount of money received by the company:

• wages;
• social security taxes;
• expenses for rent and repairs, depreciation of premises;
• advertising expenses;
• interest on loan payments;
• operating losses.

Corporate income tax, like income tax, isprogressive and is charged in steps. If the business is small, the rate will be 15% for the first $50,000 of net income. Then it increases: for the next $25,000, you will need to pay another 25%. The tax on profits that have increased by another 25% after that will be 34%, and so on. But the US tax system tries to encourage business development, so there are numerous benefits for entrepreneurs. Among the main ones are the investment tax credit and accelerated depreciation.

Property tax

In the United States property tax is imposed on all property owned by a person. Whether it's real estate, cars, securities, land - a resident of America must pay a certain fee for ownership. Luckily it's not very big. The interest rate ranges from 1 to 4% depending on the state. The states of the United States almost completely support their existence due to the property tax. The fact is that the income tax levied at the state level is usually rather insignificant and cannot provide for all the needs of an administrative unit. But the property tax provides about 80% of the state budget.

Characteristics of the tax system in America

The United States of America is made up of 50 states, each with its own tax payments and laws. However, despite their diversity, they all share common characteristics of the tax system in America.

• The main feature of the US tax system is the progressive nature of taxation,which allows you to charge an interest rate on taxes according to the level of income of an individual or corporation. For example, a single person with an income level of $6,000 would pay a 15% DIT, while a single mother with an income of $10,000 would be charged a 10% rate.
• Discreteness of taxes. Corporate income taxes are strictly delineated by law. The higher rate will only apply to a certain amount of income.
• Regular changes in tax legislation allow us to be sensitive to the demands of the economy and apply either methods of stimulating or curbing growth.
• Equality of all people with equal income - the US tax system does not allow concessions and exceptions to the rules, so people who are in the same living conditions and with approximately the same salary will have the same tax level.
• Fixed minimum income tax-free is also one of the main characteristics of the NA in America. For income tax, there is a certain figure, until which a citizen is not obliged to pay the tax rate from his own funds. For example, a person who receives $3,000 per month will not pay MON.
• The presence of a large number of taxes, discounts, deductions allows the tax system to be more flexible and convenient for the population. Although various fees make up the bulk of the costs for the population, in difficult life situations, people can take advantage of exceptions to the general rules.

Pros and cons of taxation in America

The tax system in the United States has many advantages, which we have already described. The most important is the stimulation of the country's economy, competent financial support at the federal level and the protection of the population. But even this system is not perfect, although it surpasses other countries in many ways.

Firstly, the most important disadvantage of the US tax system is the rather high amount of taxes. For example, the average income tax is 25-30%. Agree, this is a lot. Secondly, many Americans do not like the fact that taxes are paid not at one level, but at three levels. The need for VAT payments at the federal, local and state levels can hit hard not only on the wallet, but also on time: it will take more than one hour until you figure out all the declarations. Also in America there is a rather tight control over the payment of taxes, so shirking this civic duty can threaten you with a court and prison.

Comparison of the tax system of Russia and the USA

According to some experts, the Russian tax system is not perfect. Some economists believe that it can be improved by integrating foreign experience. To do this, a comparative analysis of the two systems is carried out. Since the American one is one of the most successful, it is taken for comparison.

When looking at these structures, many significant differences can be seen. So, if in the USA taxes are progressive in nature (increase in proportion to income growth), then in Russia they are the same for all levels of the population.regardless of income level. The transition in Russia to progressive taxation can help overcome huge class inequalities and stimulate small and medium-sized businesses. Another difference can be considered the predominance of direct taxes in the United States and indirect taxes in Russia. Indirect ones reduce the solvency of the population, as they are a pricing factor. In addition, in Russia, the population is much more likely to receive a "gray salary" in an envelope, and in the United States, non-payment of taxes is quite strictly punished, so there are much fewer people in America who want to "save" on taxes. Well, the last difference is the nature of the main taxes. In America, the main replenishment of the local budget comes from local (state) taxes, while in Russia the main source is the federal tax, which is the same for all regions. Because of this, funds often do not reach the far corners of our country.

Taxes are the main lever in the management of the market economy, without which it is impossible to imagine the prosperity of the country. The National Assembly has a huge potential, by developing which it is possible to achieve the growth of entrepreneurship, the solvency of the population and many other factors. Although at first glance it may seem that the tax system in the United States is complex and confusing, in fact it is not. Tax laws are adopted with a share of impeccable logic and are understandable on an intuitive level. The characteristic of the US tax system is the most positive, and this allows this country to prosper and its citizens feel safe.