Income Tax

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An income tax is a requirement that people pay a percentage of their income (usually on an annual basis) into the coffers of the state in whose territory they reside.

As such, it is deemed by many to be the fairest tax of all, since if a person earned a certain amount of money, they can surely pay a part of it in taxes, especially if they knew in advance that some percentage of their earnings would be cropped. However, there is strong debate among economists as to the distortionary effect of income taxes on the economy, with some (mostly liberal) economists saying that, due to the need to have income, it creates very little distortion, and others (mostly conservative) saying that it does still reduce the incentive to work more or invest more, causing people to then buy more consumptive goods rather than putting the money back into the economy.

Presently, many countries have "progressive taxation" on incomes, meaning that people with larger incomes are taxed in higher proportions. This still leaves the richest people the most money.

Criticism of income taxes[edit]

Conservatives and libertarians hate them for various reasons:

• Fundamentalists hate them because they cannot turn up any sanction for income taxes in the Bible, not to mention that they do not want anyone to know that their church is actually a cover for a lucrative law firm.
• Paleo-libertarians hate them because they cannot turn up any sanction for income taxes in the U.S. Constitution (except for that pesky Sixteenth Amendment, but everybody knows that the Sixteenth Amendment was never legally passed).
• Pro-business and small-government conservatives/libertarians hate them because they consider keeping track of income and filling out tax forms an expensive waste of time, and also because the red tape needed to keep track of all the incomes makes the government bloated.
• Supply side economics fans offer the following "argument" against income taxes, especially progressive ones: If you take $1,000,000 from a rich person via income tax and distribute it evenly among one million people, most of those people would just use it to buy a Coke and burp the money away. By contrast, with no income tax the rich person could invest it in research that eventually yielded cheaper soft drinks, so the one million people could get the extra Coke anyway. Uh, yeah. A lot of people don't see the problem in that being the sale price does not have to decrease given lower cost (they'll say they need the money to cover the R&D).

Certainty[edit]

Nothing is certain except death and taxes (unless you believe in cryonics and have a creative accountant).

US income tax[edit]

Abraham Lincoln signed the first federal income tax into law in 1861, specifically the Revenue Act of 1861, to help fund the Civil War.^[1] The following years saw somE seatbacks on the American income tax, such as Pollock v. Farmers' Loan & Trust Co. in 1895, but the Sixteenth Amendment to the United States Constitution overturned the Pollock decision and cleared the way for institutional support of the income tax.

Income tax revenues were a negligible fraction of the American Gross National Product (GNP) until World War II. In the early 1940s, however, it increased dramatically, from 2 percent to 15 percent of GNP without have noticeable negative effect on the growth rate. Some may argue that other aspects of the American economy changed since then. However, according to economists Nancy L. Stokey and Sergio Rebelo it is very hard to argue such a dramatic increase in income taxation would not generate at least some break in its average value. ^[2]

As of 2013, the US had the most progressive tax system among the OECD countries.^[3] After the Tax Cuts and Jobs Act of 2017 the US tax system was still overall largely progressive in 2019.^{[4][better source needed]} Even if that's not the case for every form of federal tax, the individual and corporate income taxes in US are all largely progressive.^[5]

See also[edit]

• FairTax - an attempt at getting rid of the U.S. Income tax
• Tax protest

References[edit]