What is the Income Tax Act?
The United States government, since its formation, has levied taxes on personal and corporate income to help fund public projects and programs such as the military, the construction of public roads and bridges, as well as to help fund government programs such as social security. The taxation model was developed through numerous pieces of legislation, that each aimed to establish an equitable and progressive system to supply tax rates based off an individual’s income.
The income tax is a progressive model and was originally developed through the Income Tax act of 1798. The Income Tax Act of 1798 was a British law, which was applied to United State citizens in the form of a progressive model. The original Income Tax Act instituted tax rates of 0.08% on income above 60 pounds and 10% on income above 200 pounds annually.
This tax proposal was later affirmed in 1814, where it was regarded as the foundation for the equitable and modernized taxable system in the United States of America. Although the tax was never imposed on the United States (following the treaty of Ghent) the income Tax Act of 1798 established the framework for the present-day progressive income tax system.
The Income Tax Act that fortified the taxation system of modern America was established in the passing of the 16th Amendment. This particular amendment awarded taxation power to the governing bodies of the United States. That being said, the tax laws of the Federal government and the coordinating state and local governments are enshrouded in complexities and ever-changing regulations.
As a result of these conundrums, numerous Income Tax Acts or pieces of legislation are seemingly passed every presidency that further establish and outline the tax brackets, the corresponding tax rates, and the compliance or regulatory issues that go into the taxation model. Typically an Income Tax Act will be established based on the macro-economic needs of the taxing authority or country.
For instance, if the gap between the top 1% and the middle class in America is continuously widening, a President may institute an Income Tax Act to effectively lower the tax rates of the middle earners of the country while raising the tax rates of the highest bracket. Regardless of the initiative, an income Tax Act will effectively alter the way in which the country imposes the income tax on its citizens.