US Taxation Law

US Taxation Law subtopic

Gaining a deeper understanding of US tax law has become essential in an age when nearly every financial, business and organizational decision in the United States has important tax consequences.

On the corporate side, the US tax code impacts how mergers and acquisitions must be structured, and how international business transactions are best pursued from a tax perspective. Often with the help of lawyers, families need to know the tax consequences of marriage, divorce and transfer of property. In addition, US tax law effects how non-profits can operate – especially in universities and hospitals who need to stay within the mandated tax-exempt guidelines.

For all of these reasons and more, tax lawyers are in high demand today. They are increasingly needed to guide clients through the intricacies of US tax law to help them make the best financial and legal decisions. Larger corporations often have tax lawyers on staff to help them avoid revenue-reporting mistakes, and to take advantage of the tax code within the law.

Individuals are increasingly taking advantage of US tax laws that provide an economic bonus to certain investments that are tax-reduced, tax-deferred or tax-free. In recent US history, the government has encouraged private people to contribute to certain investments that it deems to be in the public interest. This includes retirement plans and US government bonds, which may be exempt from certain taxes.

To encourage home ownership, there are tax deductions on mortgage payments. The US tax code also allows deductions for charitable donations. US life insurance policies often have tax advantages, which include having the funds either be tax-free or tax-deferred as the policy grows over the years.

Evolution of US Tax Law

The reliance on taxes to cover government spending has evolved greatly since the founding of the country. The US was tax-free for most of its early history. According to the article “A Concise History of Changes in US Tax Law” by Andrew Beattie (www.investopedia.com/articles/tax/10/concise), direct taxes such as income tax didn’t exist in the country’s early years because Americans rebelled against English taxes. Government revenues were built around tariffs and excise taxes on items such as tobacco, sugar, liquor and legal documents.

The colonists’ hatred of taxes came to the fore in the 1794 Whiskey Rebellion, when Pennsylvania farmers burned down the houses of tax collectors. Congress sent in the military to stop the revolt, and to reinforce its right to collect indirect taxes on goods.

It wasn’t until the Civil War that the income tax was initiated to cover the war’s expenses. The Revenue Act of 1861 levied taxes on incomes over $800. It was not rescinded until 1872. The Act was credited with creating the modern tax system. It was then that the US Internal Revenue Service was founded.

The 16^th amendment in 1913 paved the way for the Federal income tax. At that time, taxes were only collected on incomes over $3,000. The major surge in taxes came in the 1930s-40s, when massive funds were needed to pay for President Franklin Roosevelt’s New Deal programs and World War II.

In the 1950s, the highest tax rate was over 80%. These tax funds paid for massive infrastructure projects – especially the US highway system. This exorbitant tax rate also led to an explosion of loopholes to lower high-end taxes.

Even with the higher taxes, the growth of Medicare and Social Security caused deficits at the Federal level. It was President Ronald Reagan’s Economic Recovery Act in 1981 that was a turning point in US taxation law. This Act lowered all individual tax brackets by 25%. In 1986, the top rate was lowered from 50% to 28%. Corporate taxes were cut from 50% to 35%.

In 2017, President Donald Trump and the Republican Congress once again passed legislation to reduce the marginal tax rate and the user cost of capital, and lower the US corporate tax rate to 21% in 2018. In addition, the law allows pass-through businesses to take 20% deductions. In addition, the cost of most equipment purchased by businesses will be immediately expensed – rather than being depreciated over time. The top tax bracket went from 39.6% to 37%, according to www.heritage.org/taxes/commentary/economics.

A Growing, Lucrative Field

With the new tax law coming into effect this past year, there is a growing need for people with expertise in US tax law. Many of the nation’s top law schools offer courses focused on tax law. Among the best law schools with a concentration in this area are the University of Pittsburgh Law School, which has been cited by PreLaw magazine (www.law.pitt.edu/news-item/pitt-law-named-top-law-school), and Harvard Law School (www.tax.law.harvard.edu).

According to www.payscale.com, the median income for tax attorneys in the US is $99,332. At the high end, attorneys can make over $200,000 in salary, plus getting often lucrative bonuses and profit sharing that can bring annual earnings over the $250,000 mark.

Earnings for US tax lawyers is put even higher by www.glassdoor.com, which says in its survey that the average base pay for these professionals is $133,580 a year.

There are Master’s degree programs in taxation (www.masterstudies.com) that prepare students interested in finance careers. Students who earn a Master’s in taxation learn how to better manage money and budgets – whether it be for individuals or corporations. People in these programs gain knowledge about tax codes, international tax laws as they pertain to US tax law, budgeting, deductions and tax enforcement.

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