Americans pay many different types of taxes, but this section of DiscoverTheNetworks focuses primarily on income taxes that are imposed on individuals, family units, and corporations. One important issue examined in this section is how the income tax burden is distributed among the American population. Popular belief holds that those in the lower half of income earners pay a disproportionately high share of taxes, while wealthier Americans pay less than their “fair share.” Actual statistics suggest otherwise, however. As of 2003, the top 1 percent of taxpayers (ranked by adjusted gross income) paid 34.3 percent of all federal income taxes; the top 5 percent paid 54.4 percent; the top 10 percent paid 65.8 percent; and the top 25 percent paid 83.9 percent.

Another important issue examined in this section is the effect that taxation rates have on a nation’s overall economy. This is a subject of much debate in the United States today. Some argue that tax cuts stimulate economic growth, while others prescribe tax hikes. 

The federal corporation income tax was adopted in the United States in 1909, four years before an individual income tax was authorized by constitutional amendment. Prior to World War II, the corporate tax generally yielded more revenue for the government than did the individual income tax, but today the individual income tax generates about five times more revenue than does the corporate tax. Approximately three-fourths of U.S. states currently levy taxes on corporations.

The American tax structure is progressive (or graduated) in nature, meaning that the more income someone earns, the higher his or her tax rate is. The best way to illustrate this is to look at how the marginal tax rate rises as one’s income rises. The marginal tax rate is the rate on the last, or highest, dollar of income earned (as well as all other dollars in the same income “tier” or tax bracket. (The marginal tax rate is very different from the average tax rate, which is the total taxes paid as a percentage of total income earned.) While the amount of money one earns during a calendar year may be viewed as one lump sum called “income,” the Internal Revenue Service charges different tax rates for the different “tiers” of one’s taxable income. People pay higher tax rates on dollars that fall within higher tax brackets.

Consider, for example, a person who earned $350,000 in 2005. This income can be viewed as consisting of several tiers (each one consisting of an income range). The first tier includes all income that person earned up to $7,299, and the tax rate on that tier is 10 percent. In other words, the marginal tax rate on all income up to $7,299 is 10 percent. The second tier consists of all dollars earned between $7,300 and $26,699, and the marginal tax rate levied on these dollars is 15 percent. The third tier includes all dollars earned $29,700 and $71,949, and the marginal tax rate on these dollars is 25 percent. The fourth tier consists of all dollars earned between $71,950 and $150,149, and the marginal tax rate on these dollars is 28 percent. The fifth tier consists of all dollars earned between $150,150 and $326,449, and the tax on these dollars is 33 percent. The top tier consists of all dollars earned from $326,450 and above, and the marginal tax rate on these dollars is 35 percent.

In recent years, some economists and political candidates have proposed that the U.S. adopt a “flat tax” (also called a proportional tax) system that would tax everyone, regardless of income, at the same rate. 

Currently the largest item in the U.S. budget is Social Security, for which 21 percent of all tax dollars are earmarked. In addition, Medicare funding requires 13 percent of all tax dollars, and Medicaid requires 8 percent. Nonmilitary discretionary spending accounts for 18 percent of the budget; interest on the national debt accounts for 8 percent; military spending accounts for 19 percent; and other items make up the remaining 13 percent.

In this section of DiscoverTheNetworks, the category titled How the Tax Burden Is Distributed dispels the myth that "the rich" do not pay their "fair share" of taxes. The resources in this category reveal precisely how much the members of various economic strata pay in taxes.

The category titled Tax Cuts and Government Revenues demonstrates that lower taxes tend to increase business activity and thus produce greater revenues for the government, whereas high taxes tend to discourage business activity and therefore lead to lower revenues for the government.

The Social Security category examines the problems besetting this enormous government program.

The category titled Omnibus Spending Bill of 2009 focuses on a $410 billion spending bill hat was passed in March 2009. The bill was laden with more than 9,000 earmarks.

The category titled Stimulus Package of 2009 focuses on a $787 billion economic-stimulus bill that was passed in February of 2009. The bill was 1,071 pages long. Few, if any, legislators read the bill before voting on it.