When you have completed this chapter, you should understand the following learning objectives: Understand progressive, proportional, and regressive tax structures; understand the concepts of marginal and average tax rates as well as a simple income tax formula; understand the components of a Form 1040EZ income tax return;. | Chapter 1 Introduction to Taxation, the Income Tax Formula, and Form 1040EZ “Taxes, after all, are dues that we pay for the privileges of membership in an organized society.” -- Franklin D. Roosevelt 1 Introduction An income tax was first enacted in 1861 and repealed after the Civil War ended An income tax law was passed in 1894 and was rejected by the Supreme Court in 1895. Sixteenth Amendment to the Constitution was passed in 1913 This is the basis of modern income tax law 2 The first income tax was enacted almost 150 years ago. It was not until a constitutional amendment was enacted in 1913 that the individual income tax became a reality. Much of the Internal Revenue Code has its legal foundation in the 16th Amendment. Introduction About million individual income tax returns were filed in 2011 Almost 83% were filed electronically Individual income tax collections were about $ trillion in 2011. 3 Electronic filing has now grown to about 83% of all tax returns. Tax collections from individuals make up the largest part of total tax collections. LO #1 Progressive, proportional, and regressive tax structures Taxes are levied by multiplying a tax rate (the rate of tax) by a tax base (the amount taxed). May be multiple rates on multiple bases (see Table 1-2 for married taxpayers) 4 Most taxes are calculated by multiplying a tax rate against a tax base. LO #1 Progressive, proportional, and regressive tax structures Progressive tax structure: The tax rate increases as the tax base increases. Example is the . income tax system Proportional tax structure: The tax rate remains the same regardless of the tax base. Example is state or local sales taxes 5 One tax rate structure is a progressive tax structure where the rate increases as the base increases. The notion is that those with more can pay more. Our income tax system is based on this idea. Another structure is the proportional structure where the rate remains constant at all levels of tax base. Sales taxes | Chapter 1 Introduction to Taxation, the Income Tax Formula, and Form 1040EZ “Taxes, after all, are dues that we pay for the privileges of membership in an organized society.” -- Franklin D. Roosevelt 1 Introduction An income tax was first enacted in 1861 and repealed after the Civil War ended An income tax law was passed in 1894 and was rejected by the Supreme Court in 1895. Sixteenth Amendment to the Constitution was passed in 1913 This is the basis of modern income tax law 2 The first income tax was enacted almost 150 years ago. It was not until a constitutional amendment was enacted in 1913 that the individual income tax became a reality. Much of the Internal Revenue Code has its legal foundation in the 16th Amendment. Introduction About million individual income tax returns were filed in 2011 Almost 83% were filed electronically Individual income tax collections were about $ trillion in 2011. 3 Electronic filing has now grown to about 83% of all tax returns. Tax .
