What Is Tax Law?

The federal tax code is complicate. This complexity generally arises from two factors: the use of the tax code for purposes other than raising revenue, and the feedback course of action 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 unprotected to 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, instead of 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 without a logical organizing rule. This without of a logical organizing rule has become magnified over time, due to the interplay between subsequent legislative amendments and regulatory changes to the law and the private sector responses to those amendments and changes. for example, suppose that Congress enacts a tax credit to encourage a particular kind of activity. In response, a group of taxpayers who are not the intended beneficiaries of the credit re-order their affairs, or the shallow 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 consequence is a feedback loop of enactment and response, which, over an extended period of time, produces meaningful complexity.

In general, the U.S. income tax is highly progressive, at the minimum 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.

additionally, the progressivity of the U.S. tax system has little by little increased over recent decades. The top 20 percent of taxpayers paid approximately 56 percent of all taxes in 1980, and this figure little by little has risen to 65 percent, as of 2001. In recent years, however, a reduction in the tax rates applicable to capital gains has considerably 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 uncompletely consumption-tax regime.

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