The Internal Revenue Code is so complex that it forces businesses to spend large amounts on tax-related accounting, creating a large negative impact on business in the United States.
Formally known as the Internal Revenue Code of 1986, this law covers the statutory excise taxes, gift taxes, estate taxes, payroll taxes, and income taxes in the United States. The income taxes are divided into corporate and individual taxes and are the largest sources of revenue for the United States. As such they have the greatest impact on the economic aspects of business of any laws in the United States.
Tax laws were not codified prior to 1874. Although revisions occur almost every year, the major comprehensive revisions have occurred in 1926, 1939, 1954, and 1986. The structure of the income tax code in the first decade of the twenty-first century continues to be the 1986 version, an effort made in the administration of President Ronald Reagan. As a result of all these changes, the United States has the most complex tax structure of any country in the world. It is widely acknowledged that the complexity of this code has a major impact on the conduct of business in the United States. Although this complexity has spawned a massive accounting industry in the United States, the main impact on business is negative, no matter what the rate of taxation is.
The federal income tax is categorized as a progressive tax, in which those with higher incomes pay a higher percentage in taxes than those with lower incomes. This is justified on the theory that those with higher incomes are better able to pay the higher taxes. Some economists and most upper-income individuals argue that such higher rates are unfair and act as an impediment to the maximum economic growth of the country. Supporters of the progressive features of the income tax maintain that the drag on economic activity from the progressive features of tax is not significant.
Despite complaints from corporations and upper income individuals that the progressive feature of the income tax is unfair, many corporations and individuals have had such sufficient influence on Congress to have had provisions enacted that enable them to avoid paying tax on a substantial amount of their income. These provisions have produced much of the complexity in the income tax code and have frequently led to calls for reform. However, these calls for reform have so far proved ineffective.
Abrams, Howard E., and Richard L. Doernberg. Federal Corporate Taxation. 6th ed. New York: Foundation Press, 2008. Baiman, Ron, Heather Boushey, and Dawn Saunders. Political Economy and Contemporary Capitalism. Armonk, N.Y.: M. E. Sharpe, 2000. Willis, James. Explorations in Macroeconomics. 5th ed. Redding, Calif.: North West Publishing, 2002.
401(k) retirement plans
Corporate income tax
Personal income tax
U.S. Department of the Treasury