The history of taxation in the USA

In the United States, federal, state and local governments cover their expenses mainly through taxation. Each level of government depends on one or two types of taxes. In general, local governments have received most of their tax revenues from property taxes. State governments traditionally have depended on sales and excise taxes. However, since World War II, state income taxes have become more important.

The federal government’s chief source of revenue has been the income tax, which, in recent years, has brought in about two-fifth of total federal revenues. Other federal taxes include the corporate profit tax and social insurance (Social Security) taxes.

The federal income tax is levied on the worldwide income of U.S. citizens and resident aliens, and on certain types of U.S. income of non-residents.

The first U.S. income tax law was enacted in 1862 in order to support the Civil War. It was based on the principle of progressive taxation. But the income tax was declared unconstitutional by the Supreme Court in 1895. In 1913 a new revenue law appeared, it taxed both individual and corporate incomes. But, except the period of World War I, the income tax system was not a major source of federal revenue until 1930s.

During World War II, the modern system for managing federal income taxes was introduced. Income tax rates were raised to very high levels and these taxes became the principal sources of federal revenue. The tax on wages introduced in 1943 significantly increased the number of taxpayers to 60 million and tax collections to $43 thousand-million by 1945.

The most massive reform of the U.S. tax system was in October 1986: the president signed into law the Tax Reform Act of 1986. With this act, Congress promised individuals and businesses lower tax rates on their income.

The Tax Reform Act replaced the previous law’s 15 tax brackets, which had a top tax rate of 50 percent, with a system that had only two tax brackets – 15 percent and 28 percent. Many supporters of the 1986 Tax Reform Act say that reform was driven by the desire to improve the fairness of the federal income tax system. The new law aims to restore confidence in the system by eliminating inequities.

Questions

· What types of taxes gave revenue to local governments in the USA?

· What types of taxes did state governments depend on?

· What types of taxes are the federal government’s chief source of revenue in recent years?

· Why was the first U.S. income tax law enacted?

· When was the modern system for managing federal income taxes introduced?

· What were the income tax rates?

· What is the Tax Reform Act? What are the aims of this law?

XVIII. Complete the sentences correctly according to the text “The history of taxation in the USA” putting suitable data into gaps.

1. Each level of government in the USA depends on … types of taxes.

a) two or three

b) one or two

c) four.

2. In recent years the income tax has brought in about … of total federal revenues.

a) two-fifth

b) two-third

c) one-fourth.

3. The first U.S. income tax law was enacted in …

a) in 1895

b) in 1913

c) in 1862.

4. The most massive reform of the U.S. tax system was in …

a) September 1966

b) October 1986

c) December 1996.

5. The Tax Reform Act replaced the previous law’s 15 tax brackets, which had a top tax rate of … percent, with a system that had only two tax brackets – 15 percent and 28 percent.

a) 50

b) 40

c) 30.

XIX. Complete the sentences with the information from the text “The history of taxation in the USA”.

1. The federal income tax is levied on the worldwide income of … .

2. The first U.S. income tax law was based on the principle of … .

3. During World War II, income tax rates were raised to very high levels and these taxes became the principal sources of … .

4. The tax on wages introduced in 1943 significantly increased the number of … to 60 million and … to $43 thousand-million by 1945.

5. With the Tax Reform Act of 1986, Congress promised individuals and businesses … .

6. Many supporters of the 1986 Tax Reform Act say that reform was driven by the desire to improve the fairness of … .

XX. Find some additional information and prepare short reports on the taxation in Russia.

· The history of taxation in Russia.

· Tax evasion in Russia.

· Charity and taxation.

XXI. Speak on the significance of taxation in the economy of a country.

XXII. Speak on the topic “Taxation”. Use your own studies, ideas and conclusions on the subject.

UNIT 10

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