We all know that tax is a compulsory contribution to state revenue, which is levied by the government on worker’s income and business profits, as well as added to the cost of some goods, services, and transactions. In short, tax is a money that people have to pay to the government, since government could provide lots of public service.

Taxes are used to pay for people who work for the government, such as military and police, services such as low-cost public transportation and free public education, and to maintain or build things like roads, bridges, and sewers. Overall, tax is the most important source for U.S. government revenue.

The U.S. tax system is quite complicated, since it is set up on both a federal and state level.

When you pay taxes, the amount of taxes might not only be decided by the federal government but your state government as well. Federal taxes and state taxes are completely separate and each has its own authority to charge taxes, and the federal government doesn’t have the right to interfere with state taxation. Each state has its own tax system that is different from the other states, and within the state there may be several jurisdictions that also charge taxes. For instance, a school might be charged taxes from its counties or towns as well as from its state, which means it has to pay taxes for two rounds. Besides domestic taxes, sometimes individual and corporations who earn worldwide income need to pay foreign taxes, which is subject to several different tax accounting rules.

One interesting thing about U.S. tax system is that taxes on labor income are usually much higher than taxes on capital income. Different sources of income and spending could result in different kind of taxes and subsidies, and there are lots of indirect taxation as well. For example, individual spending on higher education is in fact “taxed” at a very high rate, compared to other forms of personal spending such as investments.  

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