Income tax in the United States increase complexity, irrespective of the system's flatness or lack thereof. Income tax is also levied by most U.S. states and many localities on individuals, corporations, estates, and trusts. These taxes are in addition to federal income tax and are deductible for federal tax purposes. State and local income tax rates vary from 1% to 16% of taxable income. Some state and local income tax rates are flat (single rate) and some are graduated. State and local definitions of what income is taxable vary highly. Some states incorporate the federal definitions by reference. Taxable income is defined separately and differently for
Income tax in the United States on saved income is itself taxed. To the extent that this is considered unjust, it may be remedied in a variety of ways, e.g. excluding investment income from taxable income, making investments deductible and therefore only taxing them when gains are realized, or replacing the income tax by other forms of tax, such as a sales tax. Some economists believe income taxation offers the federal government a technique to diminish the power of the states, because the federal government is then able to distribute funding to states with conditions attached, often giving the states no choice but to submit to