Income tax in the United States Income tax in the United States Income taxes in the United States are imposed by the federal, most state, and many local governments. The income taxes are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowable deductions. Income is broadly defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. Partnerships are not taxed, but their partners are taxed on their shares of partnership income. Residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income
Income tax in the United States made frequently to change tax laws, often with the backing of specific interest groups. Organizations making such proposals include Citizens for Tax Justice, Americans for Tax Reform, Americans for Tax Fairness, Citizens for an Alternative Tax System, Americans For Fair Taxation, and FreedomWorks. Various proposals have been put forth for tax simplification in Congress including the "Fair Tax Act" and various Flat tax plans. Proponents of a consumption tax argue that the income tax system creates perverse incentives by encouraging taxpayers to spend rather than save: a taxpayer is only taxed once on income spent immediately, while any interest earned