The American tax system was uncovered in 2021

Improvements in areas that show apparent injustice between low- and middle-income families versus wealthy Americans can improve the American tax system and improve American confidence in it.

Taxpayers always have something to say about the American tax system, particularly when it comes to the pay gap between those on low and middle incomes and those on higher incomes. The reason Americans feel about the tax system is so important is that compliance is essential. The tax system depends on its acceptance by taxpayers and while most tax players comply because it is the law and they want to avoid penalties, they complain.

Most people recognize that taxes are necessary to fund the government, but views differ on the size of the government and how much should be funded, along with the structure of the tax system, its tax rates, and how it affects different groups. In this article we are going to discuss the different types of problems people have with the American tax system and why.

Unfair distribution of the tax burden

The American tax system is known as “progressive,” which means that the rate you pay increases as your income increases. A progressive tax system applies graduated higher rates to higher income levels. Someone who makes $ 50,000 a year pays essentially more income tax than someone who makes $ 35,000. However, there are cases when this is not the case. Under this system, one would assume that the higher the income, the more tax a person would pay. After all, it’s only fair.

Unfortunately, this is not always the case. The national tax burden is not always graded according to income level, especially for companies. There has been news of companies like Amazon not paying income tax, which can undermine Americans’ confidence in the overall tax system. It’s hard to imagine that a person who supported a family of four on less than $ 50,000 a year would pay more in taxes than a company with millions or billions of dollars, but it has happened and will continue to do so until changes result in the tax system.

Tax brackets that receive higher benefits

While the tax code increases tax rates for taxable income with increasing income brackets, the progressive tax system is counteracted by exemptions and exclusions for certain types of income, lower tax rates for some income categories, deductions for expenses and more.

These adjustments are known as deductions and can lower tax rates on the income of high-income individuals so they pay less tax despite their earnings. You can help high earners avoid any tax liability at all.

Deductions and credits

Businesses can view their deductions using online tax software and other tools to see how much of their tax liability they can avoid. Deductions result in lower taxable income. For example, if someone running a business pays for new computers for the office, they can deduct these from their income on their taxes. While this sounds fair the first time you read it, considering larger tax savings for higher incomes is different from the savings from a tax credit. A tax credit saves taxpayers a percentage of their tax liability, regardless of income level and tax bracket. However, if the loan amount exceeds the taxpayer’s liability, that taxpayer will not receive the full amount of the savings unless the loan amount is refunded, which many do not.

Tax avoidance

According to the current tax law, a tax of 21% is levied on all corporate income. That being said, many companies pay lower effective tax rates (or no tax at all) due to significant business write-offs, lengthy audit negotiations, and more.

Unfair ROI and Business Loss Rules

Under the Tax Act, there are lower rates of return on investment and tax write-offs for businesses.

Capital Gains and Dividends

There are particularly low rates on capital gains and dividends that allow taxpayers with investment returns to pay low rates below those of normal income. Those whose income consists primarily of investment returns are typically higher-income Americans and pay less under this law than those with lower incomes. This annoys many hard-working Americans.

Business losses

Some individuals may use losses to offset profits or capital gains. With withdrawal and carryforward deductions for these losses, eligible taxpayers can claim write-offs that reduce their overall net taxable income. This means that a company that makes millions of dollars annually may not have to pay any taxes at all.

Taxes on income and earnings

The current tax code also collects wage taxes, among other things. Believe it or not, some of these taxes are also problematic.

income tax

Photo by Olga Delawrence on Unsplash

Income taxes are required to fund social security benefits. There is also an additional Medicare tax that applies to covered wages. Both taxes are flat regardless of income level, which means that not all taxes in the American tax system are progressive. These taxes can be a financial burden for those on a low income.

Unfair tax enforcement

When you look at the American tax system, it can be difficult to know whether it is being enforced fairly or not. If you look at all of the businesses that are taking advantage of all the savings they can legally make but low-income families are forced to pay more taxes than the rich, you may lose confidence in the current tax system.

While there are fines and penalties for not paying your taxes to convince those who are dissatisfied with the system to file taxes and comply with the regulations, there are still many who question the fairness of the system and demand reforms. It is clear that America needs to take a closer look at the tax system in order to eliminate unnecessary, inappropriate, excessive, and unfair tax breaks that can benefit the rich over the impoverished.

While many Americans turn to the IRS to handle their complaints, the IRS alone cannot change the tax number. Better auditing of high-income individuals and companies can reduce the American tax gap. Unfortunately, this requires a larger budget for the IRS, which allows auditors to spend their time evaluating complex information.

Improvements in areas that show apparent injustice between low- and middle-income families versus wealthy Americans can improve the American tax system and improve American confidence in it.