Corporate Income Tax in the United States

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- Local administrations

Most localities within the United States administer their own taxes. There are many local taxing jurisdictions with a particular taxpayer or property. For property taxes, the taxing jurisdiction is typically represented by a tax assessor/collector whose offices are located at the taxing jurisdiction's facilities.

- The tax policy system

- Tax Progressivity

The overall system of taxation in the United States is progressive. In general, it means that the percentage of income of an individual (or household) paying taxes tends to increase with increasing income. Those with higher incomes pay a higher rate of taxes.

However, a tax system may also be regressive or proportional. A regressive tax system is one where the proportion of income paid in taxes tends to decrease as one’s income increases. A proportional tax system simply means that everyone pays the same tax rate regardless of income.

Overall, the US tax system is quite complex. Some particular taxes might be progressive while other taxes are regressive.

- Types of taxes

The U.S. tax system is set up on both a federal and state level. Federal and state taxes are completely separate and each has its own authority to charge taxes. The federal government does not have the right to interfere with state taxation. Each state has its own tax system that is separate from the other states.

- Federal taxes

• Federal income taxes

The federal income taxes are levied on wages and salaries as well as income from many other sources including interest, dividends, capital gains, self-employment income, etc,… Individuals and corporations are directly taxable, and estates may be taxable on undistributed income.

• Social Insurance Taxes (payroll taxes)

Social insurance taxes are levied on salaries and wages, as well as income from self-employment. For those employed by others, these taxes are generally deducted directly from their paycheck.

Social insurance taxes are actually two separate taxes. The first is a tax of 12.4% of wages, which is mainly used to fund Social Security. The other is a tax of 2.9% for the Medicare program. The employee and employer each pay half. Thus, in the one hand, social insurance taxes normally account for a 7.65% deduction from an employee’s wage (6.2% + 1.45%). On the other hand, self-employed individuals are responsible for paying the entire share, 15.3% by themselves.

• Federal corporate taxes

Corporate taxable income is defined as total revenues minus the cost of goods sold, wages and salaries, depreciation, repairs, interest paid, and other deductions. Thus, corporations can take advantage of many deductions to reduce their taxable income. Federal tax rates on corporate taxable income vary from 15% to 39%.

• Federal excise taxes

An excise tax is a tax on the production, sale, or use of a particular commodity. The excise taxes are collected by the manufacturers or retailers, and not paid directly by the consumer. Unlike a sales tax, which is evident as an addition to the selling price of a product, excise taxes are normally incorporated into the price of a product. In most cases, consumers are not directly aware of the federal excise taxes they pay. However, every time you buy gas, make a phone call, fly in a commercial plane, or buy tobacco products, that means you are paying a federal excise tax.

• Federal estate and gift taxes

The vast majority of Americans will never be affected by the federal estate or gift taxes. These taxes apply only to the wealthiest Americans. The estate tax is applied when property is transferred at death. The estate taxes were subject to a flat 35% rate in 2011-1012. There are some deductions allowed on this tax when transferring property to a spouse, charity.

- State and local taxes

Like the federal government, to fund public expenditures and transfer programs, state governments also depend on tax revenues. State governments rely on several different tax mechanisms including income taxes, excise taxes, property taxes, sales taxes and other taxes.

Nearly all states (about 45 in 2003) have established some type of general sales tax. State sales tax rates range from 2.9% to 7.25%. A few states reduce the tax rate on certain goods considered to be necessities, such as food and prescription drugs.

State income tax is imposed at a fixed rate on taxable income of individuals, corporations, and certain estates. Forty-one states levy an income tax and the rates vary by state.

Property taxes tend to be the largest revenue source for state and local governments. The primary property tax levied in the U.S. is a tax on real estate, including land, private residences, and commercial properties. A property tax is levied in which the property is located. Homeowners pay property tax, but renters may contribute to their landlord's property tax with each rental payment. Property taxes tend to be regressive, although less regressive than excise and sales taxes.

- Composition of tax collections in the U.S

Source

Amount (Millions $)

Percent of All Taxes

Federal taxes

Income Taxes

1,145,700

30.4%

Social Insurance Taxes

900,200

23.9%

Corporate Taxes

304,300

8.1%

Excise Taxes

67,300

1.8%

Estate Taxes

23,000

0.6%

Total, Federal Taxes

2,440,500