Income tax

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Income tax is a tax levied by government on the income of individuals and businesses. The income tax was first introduced in the United States in 1862 as a levy on the salary of federal officers. In 1913, the Sixteenth Amendment to the Constitution clarified that any receipts generated by federally-connected activities, regardless of their particular source, are taxable as an excise, and are thus not subject to the rule of apportionment. This was confirmed by the U.S. Supreme Court in Brushaber v. Union Pacific Railroad (1916). Income taxes are collected by the Internal Revenue Service. Republican politicians, believing in a smaller, more efficient, and less expensive government, work hard to cut income taxes.

Year 2007 income brackets and tax rates

An individual's marginal income tax bracket depends upon their income and their tax-filing classification. As of 2007, there are six tax brackets for ordinary income (ranging from 10% to 35%) and four classifications: single, married filing jointly (or qualified widow or widower), married filing separately, and head of household.

Marginal Tax Rate Single Married Filing Jointly or Qualified Widow(er) Married Filing Separately Head of Household
10% $0 – $7,825 $0 – $15,650 $0 – $7,825 $0 – $11,200
15% $7,826 – $31,850 $15,651 – $63,700 $7,826 – $31,850 $11,201 – $42,650
25% $31,851 – $77,100 $63,701 – $128,500 $31,851 – $64,250 $42,651 – $110,100
28% $77,101 – $160,850 $128,501 – $195,850 $64,251 – $97,925 $110,101 – $178,350
33% $160,851 – $349,700 $195,851 – $349,700 $97,926 – $174,850 $178,351 – $349,700
35% $349,701+ $349,701+ $174,851+ $349,701+

An individual pays tax at a given bracket only for each dollar within that bracket's range. For example, a single taxpayer who earned $10,000 in 2007 would be taxed 10% of each dollar earned from the 1st dollar to the 7,825th dollar (10% × $7,825 = $782.50), then 15% of each dollar earned from the 7,826th dollar to the 10,000th dollar (15% × $2,175 = $326.25), for a total of $1,108.75. Notice this amount ($1,108.75) is lower than if the individual had been taxed at 15% on the full $10,000 (for a tax of $1,500). This is because the individual's marginal rate (the percentage tax on the last dollar earned, here 15%) has no effect on the income taxed at a lower bracket (here the first $7,825 of income taxed at 10%). This ensures that every rise in a person's pre-tax salary results in an increase of their after-tax salary, contrary to the popular misconception that being bumped into a higher tax bracket reduces after-tax income.

States and Local Municipalities

Most states and even some cities asses a tax on income, further increasing the amount of money withheld before a worker even sees their paycheck.

Other Taxation systems

Other state and national proposed tax systems include the Flat Tax and the Fair tax

  • Flat Tax - creates a single income tax bracket that applies equally to all Americans
  • Fair Tax - eliminates the income tax in favor of a consumption tax, most often proposed as a ~23% National Sales tax