Overview of the US Tax System Laws and Authority
General Constitutional Authorization
In the United States, Article I, Section 8 of the Constitution gives Congress the power to "lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States. This is also referred to as the "Taxing and Spending Clause."
Under the Sixteenth Amendment, Congress has the power to collect income taxes. The Sixteenth Amendment was ratified in 1913. The amendment states “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.” Notice the all-encompassing language of the law “from whatever source derived.” Luckily the tax code gives us deductions and credits that reduces the income to be taxed.
The Internal Revenue Code is the main law governing income taxes. The Internal Revenue Code is codified as Title 26 of the United States Code.
States are also allowed to impose and collect their own taxes, which is included but not limited to income taxes, sales taxes, and property taxes.
These are the laws that require natural persons and business entities to pay taxes. As a US citizen you will always have a lifelong business partner who will share in your income and profits, the United States government.
In my next posting we will discuss the basics of our progressive tax system.