Tax payment in United States of America is still a debatable issue in terms of the level of ethical adherence following the removal of taxes by the citizens. The fairness and the transparency of the federal system, which is concerned with taxes are often the biggest challenges that the tax system deals with every financial year. The country has three levels of governance, the federal, state and the local governments and in every level, taxes are imposed on the citizens. There are several types of taxes paid by the Americans, which includes taxes from individual income taxes, payroll taxes and also property taxes. Others include capital gains, dividends, sales, imports, gifts and estates.
Taxes are mainly obligatory on the individual’s net income and corporations through the local governments, states and the federal government. The residents and the citizens are taxed in terms of their worldwide revenues and are also allowed some small credit for foreign taxes. The payment of taxes together with the incomes to be taxed is proposed in the rules of accounting of tax, including the taxes from all possible sources, and not the financial accounting system. The only ways in which an individual is given permissions to decrease incomes to be taxed is through individual allowances and other spending that do not involve business such as mortgage interests, charitable contributions and medical expenses, which are mainly incurred beyond a given percentage of income.
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The rules used to determine taxable incomes differ in the three levels of governments. Payroll taxes are levied by all the state governments and the federal state. They include taxes from medical services, social security coming from both the employers and the employees from these capacities. The employers are required to withhold taxes from incomes on their salaries. There are also taxes from unemployment together with other imposes which apply to the business owners. Taxes on payrolls have been reported to have increased in the contribution to federal revenue while the corporate income taxes have reduced in contribution to the revenue. (Gee et al., 2016)
Most local governments and most authorities that have particular purpose impose property taxes basing their considerations on the value of the market of the concerned properties. Taxes on property are generally imposed only on the real property; however, some jurisdictions tax any form of business undertaken. Other properties such as schools and other authorities that are governed separately impose separate taxes from others.
Taxes on sales are usually levied by almost all states and other local governments on the prices of many goods and services based on retail sale. The taxes are collected at the point of purchase by the seller of the products. The United States also collect customs and tariffs from imported goods of any type as long as it is within the jurisdictions. User fees and license are also taxable.
Who is paying a larger percentage of taxes in America?
Income taxes from individuals is currently the primary source of revenue in the United States. The rest of the smaller percentage of the revenue comes from a mixture of sources including departments like that of social security, payrolls, Medicare taxes and exercise taxes such those from unemployment insurance taxes, oils and gasoline, alcohol, custom duties and the estates’. Borrowing usually covers the spending that is not included in the taxes. Individual income taxes are progressive in its design such that those who earn more incomes pay their taxes at higher rates.
The recent research from the Pew research Centre analysis of IRS data that is dated 2015 shows that those citizens who get the income of $200000 and above paid a good percentage of the federal income taxes that is 58.8% while only the 4.5% of all the filed returns are accounted for. On the other hand, citizens and residences who are paid or receive their income taxes below $30000 filed the 44% of all the filed returns but paid only the 1.4% of all the income taxes belonging to the federal.
The effective tax rates generally fell across the board in most of the 2000s while the highest income tiers experience a drastic and steep drop. After the American Taxpayer Relief Act of 2012, was enacted, the effective rate on the same groups of income taxes went up sharply. The law as part of the congressional strategy to resolve fiscal cliff that took place in 2012 through 2013 undid the tax cuts for upper-income taxpayers and still retained them for the middle and the lower class taxpayers.
Nearly all the Americans presently pay taxes, although the composition of the type of taxes being paid is different as for each taxpayer at the various points in the income distribution series. The affluent Americans are known to pay a larger share of the income through the individual income taxes estate taxes as well as the corporate taxes that those who get lower incomes. The group belonging to the low-income earners give a more significant portion of their incomes to exercise taxes and payrolls more than the better earning group.
Are the rich paying an excessive amount in taxes?
The progressive nature of the federal tax system implies that the rich and the wealthy people are levied way higher tax rates than that of the poor. At the same time, the poorest fifth of the taxpayers gets more money back from the federal government exceeding the ones that they paid in. The federal programs such as the Earned Income Tax Credit which favours the lower income groups. The programs give the lower income working Americans a refund of tax even if they do not owe the federal taxes. This is where the unfairness comes in, and the Americans are asking for more considerable tax rates and refunds as well. (Sances & You, 2017)
The current tax rates are considered lower as compared to the year's back, where the top tax rates have been higher than the current rate of 35%. Earlier, the top rate usually ranged from 70% to 94%. The effective tax rates, implying the amount that people pay after exemptions, deductions and other considerable benefits is at its lowest, especially in terms of the average burden on a family of four earning an average income.
Although 30% of the income inequality present in the United States today is because of the unfair taxes and cuts of budgets to services and benefits. It is only fair for the wealthiest Americans and more prominent corporations to start paying their fair share of the taxes to the federal government. If the unfairness continues and they take advantage of the many loopholes in the code of tax, other taxpayers will take the same habit, which will eventually affect the entire nation's economy. Many of the taxpayers suggest that instead of the cut down in the social security and Medicare, the wealthy should be asked to surrender a few tax loopholes so that everyone is assured of a secure retirement. The same ought to be done to the education funding where the rich could pay a higher rate if tax just like their juniors.
The conservatives say that the wealthy are overtaxed. According to the TPC, this is wrong since the total tax share contributed by those on the top wealthiest people is actually on their total share of income. It indicates that the tax system is regressive and not appreciative as it should be when it comes to the wealthy class. The progressive tax system helps to restrain income disparities and make the public services available for all Americans by providing enough revenue. Unethically, many millionaires and billionaires trying to evade taxes by paying a low rate of tax than any other American. This has consequently contributed to the ever-widening gap between the rich and the poor. (Narotzki, 2016)
There are several ways in which the rich avoid paying taxes as it is expected of them. For the case of the investments income taxes like those incomes from work, the wealthy pay a lower tax rate than other Americans because the federal taxes on investments are relatively lower than the tax paid by the average taxpayers on their salary and wage income. The irony is that the major investors such as Warren Buffett get most of his earnings and income from investments while he still pays a lower rate of tax than some of his employees who pay tax from their salary. (Do, 2016)
The rich are also able to get much bigger tax breaks for the same tax deductions taken on the middle-class people. This is due to the Cap of deductions, which is at about 28% for the rich Americans. A wealthy family is entitled to larger tax deductions on interests on larger mortgages as well as an average family living in a small mortgage house. On the same note, some rich people can take advantage of the loopholes on the estate taxes and pay almost nothing on the inheritance taxes.
The levels of exemption for the tax from estates are at $5.3 million per individual. Therefore, others take advantage of it and evade the tax payment. Others hold their taxes until death so that those who inherit escape paying taxes on the incomes.
From a historical perspective, as a percentage of income are American taxpayers paying more or less?
In an aggregate point of view, the tax codes in the United States remains to be progressive with the higher income taxpayers, in other words, the rich, paying the largest share of their incomes in taxes. The high-income Americans however, disproportionately benefit from tax breaks and tax expenditures. These include the lower rates on dividends and capital gains, deductions made for charitable contributions, and deduction from local and state taxes. The TPC analysis shows the estimates that 69% of the tax collection for 2019 will come from the taxpayers in the top quantile, those earning incomes above $157900 annually. Inside this group, those who earn more than $783300 annual income will contribute a more significant portion of the federal revenues collected of over a quarter.
The still questionable ethical part of the tax system is unresolved yet, but many economists suggest that simplifying the code of taxes would greatly help the economy. They advocate for further tax reforms which could help to promote the growth of the economy while striving to make the code more transparent, fair and straightforward. The tax code could be more appropriate if the amount of income subject to payroll taxes is capped more reasonably to benefit both the wealthy and the more impoverished Americans. (Dharmapala, 2018)
In conclusion, strategies should be put in place to ensure that ethical aspects of tax payments are adhered to for every American taxpayer to enjoy the fairness of the tax system. One of the methods of ensuring that the issue of inheritance tax is resolved is to ensure that the loopholes of income tax, that usually allows the rich people to avoid paying tax by holding them until the time they die is sealed. Specializes trusts should also come to an end, which will enable owners of big companies to avoid paying estate and gift taxes.
References
Dharmapala, D. (2018, October). International spillovers from proposed US tax reforms. In Australian Tax Forum (Vol. 33, No. 1).
Do, L. N. P. (2016). The Effects of Taxation on the Reported Proportion of Illegal Income.
Gee, L. C., Gardener, M., & Wiehe, M. (2016). Undocumented Immigrants’ State & Local Tax Contributions. The Institute on Taxation and Economic Policy.
Narotzki, D. (2016). Corporate social responsibility and taxation: the next step of the evolution. Hous. Bus. & Tax LJ, 16, 167.
Sances, M. W., & You, H. Y. (2017). Who pays for government? Descriptive representation and exploitative revenue sources. The Journal of Politics , 79(3), 1090-1094.
