Unveiling the True Face of U.S. Federal Tax The Complex Nexus of Income Tax and Business Tax

Unveiling the Truth of U.S. Federal Tax The Entanglement of Income Tax and Sales Tax

The U.S. tax system is renowned worldwide for its complexity, with income tax and sales tax being two core components that not only form the main source of federal fiscal revenue but also profoundly influence the economic operation of American society and people's lifestyles. However, behind what seems like self-evident tax rules lie many unknown contradictions and controversies. This article will analyze the characteristics of income tax and sales tax as well as their interrelations to reveal some deep-seated problems within the U.S. federal tax system.

Income tax is an essential part of the U.S. federal taxation system. It levies taxes based on the income level of individuals or enterprises. According to regulations by the Internal Revenue Service IRS, individual income tax adopts a progressive rate structure, meaning higher income corresponds to a higher applicable rate. The original intent of this design was to achieve wealth redistribution and reduce the wealth gap. However, in recent years, discussions about the fairness of income tax have increased. For example, a 2025 survey showed that although high-income groups pay most of the federal income tax, some wealthy individuals still manage to avoid paying their due taxes through complex tax planning strategies. This phenomenon has sparked public doubt over whether the wealth tax is truly enforced effectively. Due to the need for taxpayers to actively declare and cooperate with tax authorities for verification, the compliance cost can be burdensome for low-income groups. Balancing efficiency and fairness remains a challenge for policymakers when formulating income tax policies.

In contrast, sales tax appears more straightforward. It is an indirect tax levied on business activities, usually manifesting as an additional fee in the price of goods and services. On the surface, sales tax seems more transparent because it directly reflects consumer behavior. However, the reality is far from simple. On one hand, sales tax can be passed on to consumers, thereby increasing the living expenses of ordinary households; on the other hand, differences in sales tax rates and scopes across states and regions pose higher management challenges for cross-regional businesses. More importantly, with the rapid development of e-commerce, the traditional sales tax system is facing unprecedented challenges. Should online retailers bear the same tax obligations as physical stores? This issue has repeatedly become a focal point of public opinion in recent years and prompted Congress to consider revising relevant laws.

In fact, the relationship between income tax and sales tax is far more complex than what meets the eye. They do not operate independently but interact within the entire economic system. For instance, when companies pay more sales tax, they may seek compensation by raising product prices or shifting costs to employees, which ultimately affects the actual disposable income of salaried workers, the foundation of personal income tax. Similarly, changes in personal income tax can also impact corporate profitability, influencing their operational scale and investment decisions. Whether it is income tax or sales tax, any reform must take into account the overall effect.

It is worth noting that the United States has been attempting to optimize the federal tax system in recent years. For example, the Inflation Reduction Act proposed a series of tax incentive measures aimed at promoting green energy development, including expanding clean energy tax credits and providing research and development expenditure subsidies. Although these measures help stimulate economic growth, they also bring new challenges. On one hand, the addition of new tax incentives could further expand budget deficits; on the other hand, ensuring these policies benefit all eligible enterprises and individuals rather than just a few advantaged groups remains an urgent problem to solve.

In summary, the U.S. federal tax system is a complex network woven together by various factors. Income tax and sales tax are key nodes within this system, each carrying different functions and goals. However, both theoretically and practically, there exist irreconcilable contradictions between these two types of taxes. In the future, to make the federal tax system more scientific and reasonable, decision-makers need to listen to voices from all sectors of society, fully weigh various interests, and explore innovative solutions. Only then can true be achieved between tax fairness and economic prosperity.