Chapter 1 Flashcards
Tax Code Late 1790s
Federal Government first imposed direct taxes on owners of houses, land, slaves, and estates.
War of 1812
Congress imposed additional excise taxes to fund war.
Civil War
Congress passes Revenue Act of 1861, restoring earlier excise taxes and imposing a tax on personal income. Under the Constitution, Congress could impose direct taxes only if hey were levied in proportion to each state’s population
1913
By 1913, 36 states ratified the 16th Amendment to the Constitution. Congress subsequently passed a new income tax law with rates beginning at one percent and rising to seven percent for taxpayers with income in excess of 500,000. Less than one percent of the population paid income tax at the time. Form 1040 was introduced as the standard tax reporting form.
1935
The state of the economy during the Great Depression led to the passage of the Social Security Act in 1935.
1981
The Economic Recovery Tax Act of 1981, which enjoyed strong bipartisan support in Congress, represented a fundamental shift in the course of federal income tax policy. The Act Indexed for inflation thereafter. This bought the top tax bracket down to 50 percent.
1986
The Tax Reform Act of 1986 brought the top statutory tax rate down from 50 percent to 28 percent while corporate tax rate was reduced from 50 percent to 35 percent. TRA was roughly revenue neutral. Over the 22 year period from 1964 to 1986, the top individual tax rate was reduced from 91 percent to 28 percent.
1990
A significant tax increase was passed in 1990 that increased top tax rate to 31 percent.
1993
President Clinton insisted on and Congress enacted a second major tax increase in 1993, in which the top tax rate was raised to 36 percent and a top 10 percent surcharge was added, leaving the effective top tax rate at 39.6 percent.
2001
The Economic Growth and Tax Relief Reconciliation Act of 2001 was part of the Bush tax cuts. EGTRRA gave income tax relief to families, who were expected to spend extra money. Reduced income tax rates for most taxpayers by a few points and created a new 10 percent tax bracket.
2012
The American Taxpayer Relief Act of 2012 was passed by Congress on January 2013, and was signed into law by President Obama the next day. Extended certain provisions of EGTRRA which was temporarily extended by Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. 400 year of income or less had their taxes remain the same. But income above 400,000 the income tax was increased to 39.6 percent. Long term capital gains tax increased from 15 to 20 percent.
Types of Returns
Individual= 147,445,000. Estate Tax= 34,000. Gift Tax= 335,000.
Individual Income tax revenue
Gross collections= 1,539,658,421 or 50.25
Estate and Gift Taxes Revenue
20,154,944 or .7%
Property Taxes
Property taxes are based on the value of the asset and are generally on realty or personalty. Property taxes are the exclusive jurisdiction of states and their local political subdivisions are deductible for Federal Income tax purposes.
Excise Taxes
Imposed at the Federal, state, and local levels. Restricted to specific items. EX: gasoline, tobacco, liquor. Declined in relative importance until recently. Hotel occupancy tax and rental car surcharge have become increasingly popular taxes.
General Sales Taxes
Currently the jurisdiction of states and localitites. States that impose sales taxes also charge a use tax on items bought in other states but used in their jurisdiction. States without sales or use taxes are Alaska, Delaware, Montana, New Hampshire, and Oregon.
Severance Taxes
Tax on natural resources extracted. Important revenue source for states rich in natural resources. Oil, Natural gas, etc.
Death taxes
Federal Estate tax increases from 5m to 5.45m exemption with a top tax of 40 vs 35 percent.
State death tax
States impose death taxes which may be either an estate tax, inheritance tax, or both. Inheritance tax is on the right to receive property from a decedabt Tax is general based on relationship of heir to descendant.
Gift Tax
A tax on the right to gratuitously transfer assets to other person’s during a person’s lifetime.
Income Tax
Imposed on the Federal, most state, and local levels of government. Income taxes generally are imposed in individuals, corporations, and certain fiduciaries (estates and trusts)
Employment Taxes
FICA taxes. Paid by both employee and employer. In 2016, Social Security rate for employees is 6.2% on a maximum of 118,500 of wages and medicare rate is 1.45% for all wages. Self employment tax services as FICA for self employed taxpayers. Rate is 15.3% based is net self-employment income, and deduction is allowed for 1/2 of self employment tax.
FUTA taxes
Provides funds for state unemployment benefits. Is administered by states and Fed ovt. Credit is allowed up to 5.4 for FUTA paid to the state. The tax is only paid by employer.
Other Taxes
Federal customs duties- tarifs on imported goods. Franchise taxes- levied on the right to do business in the state. Occupation taxes- applicably to various trades or businesses. e.g., liquor store license, taxicab permit, fee to practice a profession.
