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In: Accounting

What is the purpose of federal income tax? Why is the goal of a fair income...

What is the purpose of federal income tax? Why is the goal of a fair income tax system so hard to achieve?

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Expert Solution

Federal Income tax is the tax levied by the Internal revenue services in United states on the annual earnings of individuals, corporates, trusts and other legal entities. This tax is applied on all forms of earnings that is part of an individual taxpayer's taxable income which could be employment earnings or capital gains. The tax which is deducted from the income is referred to as federal tax. The tax is collected from individual or corporations and is credited to the government's account. Federal taxes are the largest source of revenue to the government which comes from income of its resident. This revenue is ultimately used by the government to benefit the residents. The government uses these funds to build, repair or maintain the infrastructure, providing food and housing facility to the poor, improve sectors like education, defense, health, agriculture, public transportation etc. The revenue is used for the growth of the economy.

It is difficult to achieve a fair income tax system due to large number of sections and law. There are various tax rates, deductions for different tax payers. Also the tax system cannot be fair because each individual earn different level of incomes and charging one standard rate from a person who earns low income and a person who earns high income would be unfair and therefore there needs to be multiple tax rates.


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