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The American Tax System

In the past, Americans paid only a few taxes. As time passed, more changes were made to the taxation system of the country. Examples of levies put on multiple American taxpayers at the moment include income, estate, and corporate taxes. This money is driven by taxes and is used by the federal, state, and local governments.

Brief History

Initially, there was no structure to the American tax system. Instead, the British government collected taxes from its colony, which included tea, real estate, and head taxes. All that changed after the Revolutionary War when Congress imposed taxes on American citizens. However, these levies were collected from people by the states on specific products and services.

American Tax Types

In general, there are 3 key tax types in the United States, which are municipal, state, and federal taxes. The levy paid for an item, service, or revenue depends on all these 3 taxes. Yet, the percentages for each tax type are different depending on the rates for each municipal, state, and federal level.

Municipal Tax

Within the American tax system, every municipality can collect local tax. Nonetheless, not every locality imposes this levy on some products and services. Those that do collect taxes use the money to maintain the activities of the municipal, which may include the operation of public spaces, cleaning of city streets, and payment of government workers. It is also used to construct new buildings.

State Tax

The primary tax collected in the states is income tax. But not all states require people to pay income tax. Also, some of these states include Texas, Alaska, and Nevada. For those states that mandate the payment of income tax, the rate paid varies across different locations. Also, some states have a progressive rate, while others use a flat rate. Once these states collect this levy, they use it to run activities like education, healthcare, military, and public housing.

Federal Tax

Federal taxation is composed of income tax, which is collected by the IRS (Internal Revenue Service). This money collected is what is used to finance the budget of the federal government. Just like municipals and states, the money collected from the federal tax is used to fund the activities like education, infrastructure, and transportation.

Internal Revenue Service

It is impossible to discuss the American tax system without talking about the IRS. This agency is saddled with tax enforcement and collection as stated in the law. In addition, this agency was created in 1862 under the presidency of Abraham Lincoln. Since its establishment, the IRS has operated under the Department of the Treasury. As stated earlier, this agency is responsible for the collection of employment and income taxes.

The IRS operates out of Washington DC. As such, it allows people with legitimate tax concerns to make in-person appointments at the headquarters or other local offices. As for tax filing, this can be done via the internet. Alternatively, a person can complete and mail IRS forms for their tax return.

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