What Is Tax Law?

The federal tax code is complex. This complexity generally arises from two factors: the use of the tax code for purposes other than raising revenue, and the feedback process of amending the code.

While its main intent is to provide revenue for the federal government, the tax code is frequently used to direct the behavior of businesses and individuals in an attempt to achieve social, economic, and political goals.

For example, the tax law provides a deduction for mortgage interest in order to encourage home ownership. A theoretically pure income tax would not allow this deduction, which is not an expense incurred for the production of income. The allowance of the mortgage interest deduction is seen by some as discrimination against taxpayers who rent, rather than own, their home: the payment of rent for one's home is not deductible. Of course in theory, landlords generate tax savings on their mortgage interest payments, and pass these savings on to renters.

Because the government uses the tax code as an instrument of social policy, the code as a whole appears to lack a coherent organizing principle. This lack of a coherent organizing principle has become magnified over time, due to the interplay between successive legislative amendments and regulatory changes to the law and the private sector responses to those amendments and changes. For instance, suppose that Congress enacts a tax credit to encourage a particular type of activity. In response, a group of taxpayers who are not the intended beneficiaries of the credit re-order their affairs, or the superficial aspects of their affairs, to qualify for the credit.

Congress responds by amending the code to add restrictions and target the credit more effectively. Certain taxpayers manage to use this change to claim additional benefits, so Congress acts again, and so on. The result is a feedback loop of enactment and response, which, over an extended period of time, produces significant complexity.

In general, the U.S. income tax is highly progressive, at least with respect to individuals that earn wage income. As of 2001, the top 1 percent of individual taxpayers paid approximately 23 percent of all federal taxes. The top 5 percent paid approximately 39 percent, and the top 10 percent paid 50 percent of all federal taxes. The bottom 20 percent of taxpayers paid a little over 1 percent of all federal taxes.

Moreover, the progressivity of the U.S. tax system has gradually increased over recent decades. The top 20 percent of taxpayers paid approximately 56 percent of all taxes in 1980, and this figure gradually has risen to 65 percent, as of 2001. In recent years, however, a reduction in the tax rates applicable to capital gains has significantly reduced the income tax burden on non-wage income. In this regard, the general structure of the U.S. tax system has begun to resemble a partial consumption-tax regime.

For more free legal information on Tax Law, please visit Free Legal Information.

---

About Income Taxes; Tidbits

1812The first attempt to impose an income tax on America... Read More

IRS Lock-In Letters ? What?s An Employer To Do?

Employers often ask employees to designate the amount of tax... Read More

Tax Trap #1 -- Waiting to Incorporate: What A Difference A Date Can Make

NOTE: This is the first in a series of 5... Read More

Tax Trap #4 -- The Quagmire of Depreciation

If you are a Small Business Owner or Self-Employed Person,... Read More

Reducing Taxes Through Dividend-Salary Mix Calculations

Should I take wages or dividends from my privately owned... Read More

Getting A Second Extension to File 2004 Taxes

Millions of people file tax return extensions every year. The... Read More

Render Unto Caesar

Once a year Canadian taxpayers are required, by law, to... Read More

What the Tax Software Companies Dont Want You to Know

Haven't done your taxes yet? No problem. Now there is... Read More

Organizing Your Taxes

Does this scene sound familiar? It's April 7. You haven't... Read More

How to Reduce the Estate Tax Using the A-B Revocable Living Trust

In a past article I relayed the plight of the... Read More

Your IRS Tax Appeal Rights

Are you in the middle of a disagreement with the... Read More

Take Control of Your Taxes

As everyone in the U.S. knows, we have just passed... Read More

How To Get An Instant Pay Raise

As a gentleman was leaving my class recently, he wanted... Read More

What to Do If You Can?t Pay Your Taxes

The end of tax filing extensions is quickly approaching. What... Read More

Euro Tax Haven Threat

Media reporting of a new EU savings tax directive has... Read More

Small Businesses Filing Amended Federal Tax Returns to Recover Money

Small Businesses Filing Amended Federal Tax Returns to... Read More

Small Business Tax Credit - Americans with Disabilities Act

Many small businesses complain when confronted with the expense of... Read More

Hurricane Katrina ? How To Use Your Business Loss To Get A Refund on 2004 Taxes

With the massive losses caused by Katrina, the economy of... Read More

Marriage or Divorce ? Check Your Social Security Number

Newlyweds and the recently divorced should make sure that names... Read More

IRS Obtains More Than 100 Injunctions Against Tax Scheme Promoters

The IRS has obtained civil injunctions against more than 100... Read More

Employment Taxes ? Depositing With The IRS

If your business has employees, you must pay employment taxes.... Read More

Are You Overpaying Taxes If You Use Tax Preparation Software?

For many business owners the answer to this quandary is... Read More

Tax Help Secret: Avoiding the Entreprenuers Curse

Your days as an entrepreneur and businessperson are consumed with... Read More

Taxation of Forgiven Debt: The 1099C & You

Often people fall on hard times and stop paying on... Read More

E-commerce Taxation

The means and types of businesses have transformed with advent... Read More

The Internet Tax Man Cometh

Q: I was contacted by the city tax collector to... Read More

Send Your Kids To Summer Camp and Write It Off

If you paid someone to care for a child so... Read More

What Is Tax Law?

The federal tax code is complex. This complexity generally arises... Read More

To Tax or Not to Tax - This is the Question

To tax or not to tax - this question could... Read More

Fiscal Deity: Tax Consultant

Strategic planning throughout the year results in a minimal tax... Read More

Back To School ? Educators Deduct School Expenses

As teachers and students head back to school following a... Read More

How to Donate Your Car to Charity and Get Tax Deduction

Donating your used car to charity is a win-win situation;... Read More

What is a Federal Tax Lien?

A Federal Tax Lien (FTL) is a legal instrument that... Read More