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Income tax is a direct tax which is levied on the income of private individuals. Various income tax systems exist, ranging from a flat tax to an extensive progressive tax system. Tax levied on the income of companies is often called corporate income tax or corporation tax, although some jurisdictions impose income tax on companies. An income tax is a tax on net income, which is the difference between gross receipts and expenses.
History of income tax in the UK  Income tax was first introduced in Britain by William Pitt the Younger in his budget of December 1798. The revenue was intended to help finance the war against France. Pitt's new graduated tax began at a levy of 2d in the pound (0.8333%) on incomes over £60 and increased up to a maximum of 2s (10%) on incomes of over £200. Pitt hoped that the new income tax would raise £10 million but actual receipts for 1799 totalled just over £6 million. Income tax was levied under 5 schedules - income not falling within those schedules was not taxed. The schedules were: Schedule A (tax on income from UK land) Schedule B (tax on commercial occupation of land) Schedule C (tax on income from public securities) Schedule D (tax on trading income, income from professions and vocations, interest, overseas income and casual income) Schedule E (tax on employment income) Later a sixth Schedule, Schedule F (tax on UK dividend income) was added. Pitt's income tax was levied from 1799 to 1802, when it was abolished by Henry Addington during the Peace of Amiens. Addington had taken over as prime minister in 1801, after Pitt's resignation over Catholic Emancipation. Income tax was reintroduced by Addington in 1803 when hostilities recommenced, but it was again abolished in 1816, one year after the Battle of Waterloo. Finally, income tax was reintroduced in 1842 by Sir Robert Peel. Peel, as a Conservative, had opposed income tax in the 1841 general election, but a growing budget deficit required a new source of funds. The new income tax, based on Addington's model, was imposed on incomes above £150. Income tax has changed over the years - it used to be a tax on income regardless of who was beneficially entitled to it. A person is now levied only on income to which they are beneficially entitled. Also, most companies were taken out of the income tax net in 1965 when corporation tax was introduced. Also the Schedules under which tax is levied have changed. Schedule B was abolished in 1988, Schedule C in 1996 and Schedule E in 2003, though the Schedular system and Schedules A, D and F still remain. Rates peaked in the late 1970s at 99%. Income tax remains an annual tax, and is reimposed each year in the annual Finance Act. Income tax has a number of bands: 10% (lower rate), 20% (basic rate for interest), 22% (basic rate), 32.5% (higher rate for UK dividends) & 40% (higher rate for other income). There are also a number of allowances allowed before the tax bands apply. History of income tax in the USAIn order to help pay for its war effort in the American Civil War, the United States government issued its first personal income tax, on August 5, 1861 as part of the Revenue Act of 1861 (3% of all incomes over US $800; rescinded in 1872). Other income taxes followed, although a 1895 Supreme Court ruling, Pollock v. Farmers' Loan & Trust Co., limited the sources of income that Congress could tax without apportionment. The Sixteenth Amendment to the United States Constitution removed the limitations, paving the way for the income tax to become the government's main source of revenue. The American federal income tax reaches all income from whatever source derived, including criminal enterprises; criminals who fail to report their income accurately have been successfully prosecuted for tax evasion. The 16th Amendment did not give Congress any new taxing powers. In Treasury Decision 2303, the Secretary of the Treasury directly quoted the Supreme Court (Stanton v. Baltic Mining Co. (240 U.S. 103)) in saying that "The provisions of the sixteenth amendment conferred no new power of taxation," but instead simply prohibited Congress original power to tax incomes "from being taken out of the category of indirect taxation, to which it inherently belonged, and being placed in the category of direct taxation subject to apportionment."
During World War I the top rate rose to 77 percent; following the war, the top rate was scaled down (to a low of 25 percent). During the Great Depression and World War II, the top income tax rate rose again, reaching 91% during the war; this top rate remained in effect until 1964. In 1964 the top rate was decreased to 70% (1964 Revenue Act), and then to 50% in 1981 (Economic Recovery Tax Act or ERTA). The Tax Reform Act of 1986 reduced the top rate to 28%, at the same time raising the bottom rate from 11% to 15% (in fact 15% and 28% became the only two tax brackets). During the 1990s the top rate rose again, standing at 39.6% by the end of the decade. In 2001 the top rate was cut to 35% and the bottom rate was cut to 10% by the EGTRRA, or Economic Growth and Tax Relief Reconciliation Act. In 2003 the JGTRRA, or Jobs and Growth Tax Relief Reconciliation Act, was passed, expanding the 10% tax bracket and accelerating some of the changes passed in the 2001 EGTRRA. History of income tax in AustraliaAustralia uses a progressive form of income tax. The highest bracket for individuals is 48.5%%. The company tax rate is a flat 30%. Capital gains on assets held for longer than twelve months may be subject to a discount rate (but not for companies). Australia is a federation of states. Since World War II the states no longer levy any income taxes but do levy taxes including land tax, stamp duty and payroll tax Income tax in SwedenSweden has a taxation system that combines a direct tax (paid by the employee) with an indirect tax (paid by the employer). In practice, the employer provides the state with both means of taxation but the employee only sees the direct tax on his declaration form. Below is a compilation of the taxes that compose the final income tax (2003):
ExampleIncome: 180,000 kronor ($25,000)
Income: 450,000 kronor ($64,285) (eligble for "federal" income tax of 25%)
External links
Nations with No Personal Income Tax
See also
da:Indkomstskat de:Einkommensteuer
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