Define the Federal Income Tax System

The federal government relies heavily on income taxes to pay for its operations. According to the Congressional Budget Office, personal income taxes accounted for 45 percent of revenues and corporate income taxes accounted for an additional 12 percent in 2008.

History

The first income taxes in the United States were passed during the Civil War but were repealed soon after. The 16th Amendment made it constitutional to pass a federal income tax and the first permanent income tax was passed in 1913.

Function

The federal income tax system taxes both earned income, such as wages and salaries, and unearned income, such as interest and dividends.

Type

The federal income tax system is a progressive tax, meaning that the more taxable income you have the greater percentage of your earnings you pay in income taxes.

Size

The 1913 income tax had a maximum tax bracket of 7 percent. As of 2009 the largest tax bracket is 35 percent. During World War II, the largest tax bracket was 94 percent.

Considerations

In 1913, only 1 percent of Americans paid federal income taxes. According to CNN, 53 percent of households in the United States will have to pay income taxes in 2009.

References

• U.S. Treasury
• 2009 Tax Brackets
• 47% Will Pay No Federal Income Tax

Resources

• What Are the Federal Government's Sources of Revenue?