In: Economics
The United States of America has separate federal, state, and
local governments with taxes imposed at each of these levels. Taxes
are levied on income, payroll, property, sales, capital gains,
dividends, imports, estates and gifts, as well as various fees. In
2010, taxes collected by federal, state, and municipal governments
amounted to 24.8% of GDP. In the OECD, only Chile and Mexico are
taxed less as a share of their GDP.
Taxes fall much more heavily on labor income than on capital
income. Divergent taxes and subsidies for different forms of income
and spending can also constitute a form of indirect taxation of
some activities over others. For example, individual spending on
higher education can be said to be "taxed" at a high rate, compared
to other forms of personal expenditure which are formally
recognized as investments.
Taxes are imposed on net income of individuals and corporations by
the federal, most state, and some local governments. Citizens and
residents are taxed on worldwide income and allowed a credit for
foreign taxes. Income subject to tax is determined under tax
accounting rules, not financial accounting principles, and includes
almost all income from whatever source. Most business expenses
reduce taxable income, though limits apply to a few expenses.
Individuals are permitted to reduce taxable income by personal
allowances and certain non-business expenses, including home
mortgage interest, state and local taxes, charitable contributions,
and medical and certain other expenses incurred above certain
percentages of income. State rules for determining taxable income
often differ from federal rules. Federal marginal tax rates vary
from 10% to 37% of taxable income. State and local tax rates vary
widely by jurisdiction, from 0% to 13.30% of income and many are
graduated