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The history of taxes in the united states
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Tax Law and Accounting
Income tax is a part of the fiscal policy of our economy. The first federal income tax was imposed by Congress in 1862, to finance the waging of the Civil War. The Civil War income tax was repealed in 1872, but a new income tax was enacted as part of the 1894 Tariff Act. However, the Supreme Court struck down the income tax in 1895. It ruled that the portion of the income tax that applied to income on property was a direct tax that, under the United States Constitution, could not be levied without apportioning the tax by population. In 1913, the states ratified the Sixteenth Amendment to the United States Constitution, which made possible modern income taxes (Taxation).
The sources of the modern income tax statutes
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GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information." Thus GAAP, (Generally accepted accounting principles), which help in achieving the above objectives whilst preparing financial statements, including the company's balance sheet, income statement and cash flow statement. Moreover principals are necessary to allow the economy to function efficiently, because decisions about the distribution of resources rely heavily on credible, concise, and understandable financial information. Financial information about the operations and financial position of individual companies is also used by the public in making various kinds of decisions.
GAAP is based on prevalent industry practice; Accounting Principles Board (APB) statements and opinions; Financial Accounting Standards Board (FASB) statements, concepts, technical bulletins and interpretations; American Institute of Certified Public Accountants (AICPA) statements, issue papers, bulletins, interpretations and concepts; as well as various other professional announcements, textbooks and
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The major differences can be timing and recognition differences. The timing difference involves revenue such as prepaid rent for GAAP and tax return purpose. In addition, timing differences can be due to different methods of valuing assets like different depreciation rates under GAAP and tax accounting rules. Additionally there is difference in how are taxes reported in GAAP and Tax accounting. GAAP reporting does not accurately present taxes paid. Tax reporting does not accurately reflect the useful life of the equipment. Another can be recognition of the liabilities or income or expenses. When rental fees are collected in advance the GAAP, applied rent revenue recognized when earned. The tax code applied the rent collection considered as taxable income (New York Life).
The recognition differences can be the permanent differences where some income and expense items being recognized under GAAP but not for tax purposes, or vice versa. For example, certain incomes which are tax exempted will not be considered in tax accounting. Similarly some expenses can be non deductible under tax accounting. Another difference can be revenue municipal bonds. In GAAP, the revenue recognized as interest is earned. According to the Tax Code, the interest revenue is exempt from federal
Sixteenth Amendment- Authorization of an Income Tax – Progressives thought this would slow down the rising wealth of the richest Americans by using a sliding or progressive scale where the wealthier would pay more into the system. In 1907, Roosevelt supported the tax but it took two years until his Successor, Taft endorsed the constitutional amendment for the tax. The Sixteenth Amendment was finally ratified by the states in 1913. The origin of the income tax came William J Bryan in 1894 to help redistribute wealth and then from Roosevelt and his dedication to reform of corporations. I agree with an income tax to pay for all of our government systems and departments, but I believe there was a misfire with “redistributing wealth.” The redistribution is seen in welfare systems whereby individuals receive money to live. This is meant to be a temporary assistance, but sadly, most that are in the system are stuck due to lack of assistance in learning how to escape poverty. There are a lot of government funded programs, but there is no general help system to help lift people up and stay up, so there continues a cycle of
Many debates have been waged over the decades on what will be taxed, on who shall be taxed and how taxes are collected. Since the 16th Amendment was ratified in 1913, the debate has intensified, centering on how high to make the income tax rate. Most Americans were not concerned since the Amendment was sold to them as something that would only affect corporations and the rich. With ever increasing fervor these corporations created lobbyists to convince Congress to exempt them from some or all of the income tax. The big breakthrough in this was taxing the worker directly with payroll taxes during World War II. This method of collecting income tax was sold to Americans as temporary, but Congress has extended it indefinitely and the public has become used to it. The next few decades saw the debate revolve around creating tax breaks for individuals in an attempt to modify behavior or spending. This has resulted in over 67,000 pages of tax code and an entire industry devoted to tax compliance and evasion, with the unintended behavioral change of corporations and the rich parking their money outside of the United States in small island nations to avoid taxation. These offshore accounts are estimated to hold $10 trillion dollars, a number approximate to the national debt. The FairTax Act should be enacted because it eliminates all federal income taxes for individuals and corporations, eliminates all federal payroll withholding taxes, abolishes estate and capital gains taxes and repeals the 16th Amendment; thus eliminating the need for offshore accounts.
The above diagram shows the GDP growth rate of United States of America during the recession. From 2008 to 2009, the GDP growth rate of USA fell from approximately +3 to about -7. After President Obama created the Stimulus plan in 2009, the GDP growth rate increased rapidly from -7 to almost +5. This shows that the policy applied by US government works very well to help America recover from Great Recession. Besides, the US government did cut taxes. This was successful as it increased the net income of people. American can have more money in their pocket to spend. Moreover, the Federal Reserve decreased the interest rate to help United States to get out of the recession. Reduced in interest rate help the economy by encouraging
The constitution for Missouri and the United States share many ideologies. One of these similarities is the right of the government to tax its people. Taxing is when part of someone’s purchase or income, is taken away from the government so they can provide and afford services for the people. In the sixteenth amendment, passed in 1909 it states: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration” (US Constitution). This essentially means that the United States government has the power to collect money from a person’s income. As well as being able to collect it there is also the power to implement the
...roportionally higher taxes and come of welfare benefits, moderating the disposable income. As incomes fall in a recession the impact the falling incomes have for income earners is softened as high income earners pay less tax proportionally, and retain more post-tax income, while the low income earners receive benefits, thus injecting into the economy and moderating a downturn in the economy, this is fiscal boost.
They had to think of new ways to make the economy better. “In 1932 Franklin Delano Roosevelt was elected overwhelmingly on a campaign promising a New Deal for the American people.”(3) and he worked alongside the people to come up with new ways to improve the economy. Furthermore, these efforts of the president and the people “did not end the Depression, the New Deal’s experimental programs helped the American people immeasurably by taking care of their basic needs and giving them the dignity of work and hope.”(3). This action indicates that President roosevelt had to think of new ways to work alongside the people to overcome this monetary barrier. Although, this did not end the great depression but improved the economy and brought the people closer to achieve that goal. All in all, the great depression was a massive calamity that caused the government to assist the people in coming up with new ways to improve the economy and climb out of this great depression.
The Great Depression was one of the greatest challenges that the United States faced during the twentieth century. It sidelined not only the economy of America, but also that of the entire world. The Depression was unlike anything that had been seen before. It was more prolonged and influential than any economic downturn in the history of the United States. The Depression struck fear in the government and the American people because it was so different. Calvin Coolidge even said, "In other periods of depression, it has always been possible to see some things which were solid and upon which you could base hope, but as I look about, I now see nothing to give ground to hope—nothing of man." People were scared and did not know what to do to address the looming economic crash. As a result of the Depression’s seriousness and severity, it took unconventional methods to fix the economy and get it going again. Franklin D. Roosevelt and his administration had to think outside the box to fix the economy. The administration changed the role of the government in the lives of the people, the economy, and the world. As a result of the abnormal nature of the Depression, the FDR administration had to experiment with different programs and approaches to the issue, as stated by William Lloyd Garrison when he describes the new deal as both assisting and slowing the recovery. Some of the programs, such as the FDIC and works programs, were successful; however, others like the NIRA did little to address the economic issue. Additionally, the FDR administration also created a role for the federal government in the everyday lives of the American people by providing jobs through the works program and establishing the precedent of Social Security...
The US government’s role in the Great Depression has been very controversy. Different hypothesizes argued differently on the causes of the Great depression and whether the New Deal introduced by the government and President Roosevelt helped United States got out of the depression. I would argue that even though not the only factor, the US government did lead the country into the Great Depression and the New Deal actually delayed the recovery process. I will discuss five different factors (stock market crash, bank failure, tariff and tax cut, consumer spending and agriculture) that are commonly accepted to cause the depression and how the government linked to them. Furthermore, I will try to show how the government prolonged the depression in the United States by introducing the New Deal.
According to Accounting Theory: Contemporary Accounting Issues by Evans, accountants have developed two alternative approaches to accounting for income taxes, which are the cash method and the allocation method. The cash method is described as a simple and direct approach. The amount of income taxes actually paid for the year is reported on the Income Statement. The amount comes from the firm's income tax return and fit is not adjusted in any way. Therefore, the firm's actual transaction to record its income tax liability is the basis for the amount of the income tax expense reported on the Income Statement. The allocation method is a bit different. The actual amount of tax that is paid in the year is ignored when it comes to reporting income tax expense on the Income Statement. The amount of income tax expense reported on the Income Statement is based on the on the income tax rate that the firm pays, which is applied to the amount of pretax income. This makes the Income Statement perfectly consistent with the before-tax income. Using the allocation method makes it look like all items on the Income Statement based on the same method.
Everyone has their own political leaning and that leaning comes from one’s opinion about the Government. Peoples’ opinions are formed by what the parties say they will and will not do, the amounts they want spend and what they want to save. In macroeconomic terms, what the government spends is known as fiscal policy. Fiscal policy is the use of taxation and government spending for the purposes of stimulating or slowing down growth in an economy. Fiscal policy can be used for expansionary reasons, which is aimed at growing the economy and increasing employment, or contractionary which is intended to slow the growth of an economy. Expansionary fiscal policy features increased government spending and decreases in the tax rates as where contractionary policy focuses on lowering government spending and increasing tax rates. It must be understood that fiscal policy is meant to help the economy, although some negative results may arise.
In time of economic crisis the government has a choice to cut spending or increase spending for public goods and services. “In 2009, Congress passed the American Recovery and Rein- vestment Act, which authorized $787 billion in spending to promote job growth and bolster economic activity”(Stratmann/Okolski 3). John Maynard Keynes, an economist of 20th century, suggest that the government should run a deficit if it will create jobs and increase capital gain. This theory support the current stimulus package that has been introduce during President Obama’s term. Although the flaw with this concept is that it makes the assumption the government has done studies and understands which areas needs the funding the most and knows where it will be beneficial, realistically that is not true. “Federal spending is less likely to stimulate growth when it cannot accurately target the projects where it will be most productive” (Stratmann/Okolski 2). This can be seen because political figures will spend money where it directly supports their needs as well. For instance, the political figure would rather spend money to things that will yield a p...
The four types of taxes this paper will discuss are income tax, sales tax, property tax, and user fees. Income tax was not permanently established until the 16th Amendment was passed in 1913. Most federal taxes had been previously derived from excise taxes on tobacco and alcohol and other consumer goods. The US Constitution, when written and still continues to, legitimize taxation in the United States through Article I, Section 8, that Congress has the power to lay and collect taxes, duties et al, pay the debts or provide for the common defense and general welfare of the United States (Cornell Law LII). Investopedia defines income tax as ‘a tax government(s) impose on financial income generated by all entities within their jurisdictions (Investopedia, 2014). Businesses and individuals are required to file an income tax return every year to determine if they owe taxes or qualify for a refund. That is determined by measuring the total income one earns to a designated tax rate, calculating one’s taxable income, which are some or all items of income reduced by other adjustments or expenses in that tax year. There are different subcategories of income tax; there is a federal income tax that is set by the federal government, apart from a few states, there is a state income tax that is imposed on their respective residents, as well as the possibility of there being local income tax ...
...the recipients of these tax cuts may not spend the money. The tax cut may though increase the wealth of recipients but they may not spend money due to low marginal propensity to consume. The recipient of the tax cut may decide to save the extra amount of money rather than spending it. Without the expenditure there will be no income generated so this may not simulate the growth of entire economy.
Taxation is a compulsory levy imposed on the income, value of goods and services of individuals, partners and companies by the government. It is can be said to be an approach of imposing tax on the citizen. This imposition of tax, is expected to yield income which should be utilized in the provision of both basic and substantial infrastructural amenities, both social and security, as well as creates conditions for the economic well-being of the society at large.
The revenue/cost period-: Revenue and the cost period in accounting that the company get income from normal business activities. It’s referred to normal business income that the company got by selling their product and service.