There are two main ways for governments to collect taxes. One is by taxing income directly. This is known as an income tax. The other is taxing only income that is spent.
Currently, some types of income are either taxed at lower rates than ordinary income or are exempt from taxation to some degree.
In general, only cash income is subject to the income tax.
Tax credits and deductions are two ways to reduce tax liability. Tax credits directly reduce the amount of taxes owed, dollar-for-dollar.
The federal estate taxA tax based on the value of the estate of someone
State and local governments issue bonds to finance important projects that meet social goals and benefit communities.
How to improve the tax code is the subject of much debate. Proponents of reform often call for increasing fairness and simplicity.
Policymakers use the tax system to raise revenue and to promote social policy goals. For example, they may want to encourage desirable behaviors, such as home ownership.
Most states and localities generate a significant portion of state and local revenue from the taxation of retail sales.