Tax Systems in the United States

Tax Systems in the United States

A tax is a required legal financial burden or any kind of levy imposed upon a taxpayer by a governmental entity to fund public expenditure and government spending. The amount of tax, which varies from one country to another, is determined by the governments of the countries and is generally assessed by the customs. The payment of tax is considered voluntary by most taxpayers. However, there are situations where liability for tax becomes inevitable. Criminal proceedings may be brought against tax evaders if they fail to pay their share.

The major categories of taxes are the central and state taxes. These taxes include income, estate, value addition, sales tax, property tax, franchise tax, and the national highway fund. The states may also impose direct taxes such as the gasoline tax, cigarette tax and license fee. Consumption tax is directly proportional to the retail price of merchandise. Income and estate taxes are imposed on the basis of wealth.

The types of taxes depend upon the type of income of an individual, corporate body and estate. In the United States, the taxation system is based on progressive taxation which base the tax rate on the increase in the marginal income of an individual over a period of time. Sales tax, which is often termed as the income tax, is imposed by state governments and is typically equal to the retail price of the item bought.

The tax on real estate includes real property taxes, building taxes, mortgage tax and special assessment fees. Excise taxes are levied only on specific transactions such as selling or buying of certain structures. General Excise tax charged on goods is levied according to the rate of retail price and not including special assessment fees. Alcohol and tobacco products have special tax on possession.

A corporate income tax system in the United states is generally based on one of two types of taxation system, namely the progressive or regressive tax system. In a progressive tax system, all income is taxed once and after a specified level, the highest marginal rate is applied to the capital gains and dividends and the corporate income tax is then charged on the same amount. In a regressive system, the rate of taxation of corporations is based on the proportionate share of ownership in a business that is carried by the corporation.

All sources of revenue are subject to taxation; sales tax, income tax, property tax and payroll taxes. These taxes are collected by the revenue officials from the receipt of income, including the income from personal sources such as salaries, interest and dividends. Excise tax on corporate earnings and payroll taxes are imposed by state governments. Social security and Medicare taxes are collected by the US federal government.