The federal income tax, permanently implemented for the first time in 1913, is a significant means by which the federal government raises revenue. The United State Treasury Department, and more specifically, its Internal Revenue Service (“IRS”), is responsible for the collection of the federal income tax revenue. The Department accomplishes this task primarily by (1) enforcing the tax provisions codified by Congress under Title 26 of the United States Code (“Internal Revenue Code” or “Code”) and (2) issuing Treasury Regulations stating its authoritative interpretation of Code provisions and other income tax issues. Within the Code, Subtitle A (26 U.S.C. §§ 1-1564) includes a majority of the tax provisions that relate directly to the income tax.
Federal income tax rates are the result of a multitude of factors; federal spending programs, employment rates, Congressional composition, both the domestic and global economy, and the current President all have significant influences on these rates. For example, World War 2 expenses drove the highest tax bracket to a 94 percent rate in 1944. Conversely, the 1980’s Ronald Reagan administration initiated drastic rate reductions that saw top-bracket rates fall as low as 28 percent in 1988.
All in all, income tax rates, regulations, and policies are ever-changing. Therefore, it is vital for taxpayers, and/or their tax professionals, to fully comprehend and track these changes.