The debate over taxes in the United States seems to be ever raging. Some say the system is broken and unfair, and should be abolished. Others think reform is the answer.

No matter what your political leanings, it’s important to understand the issue of income tax and be vocal about the policies your government is enacting in regard to them. Income tax issues affect everyone. The number one way you set yourself up to be abused by government policies is by not paying attention to them in the first place. So today we ask: Is our income tax system fair? Let’s review the facts.

What is income tax?

Income tax is placed on taxable income–the sum of all kinds of income, and the amount of taxable income can be reduced through tax deductions and exemptions. Taxpayers file tax returns to self-assess their income tax.

Here’s a short version of how it works: taxpayers determine their gross income, which includes work income, interest income, pension and annuities. Then, they subtract adjustments like alimony, retirements plans, taxes paid on self-employment, etc. This number is the adjusted gross income (AGI). Next, taxpayers subtract a standard deduction or subtract itemized deductions–whichever is greater. Then, personal exemptions are subtracted. The number remaining is the taxable income. Once taxpayers have determined their taxable income, they use the number to determine which tax bracket they fall into. After the fiscal cliff deal of 2012, there are now seven: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent. How the tax rate works depends on income and marital status.  As another complication,profit on investments that were owned for more than a year are taxed at 25 percent.

Is the system fair?

The U.S. income tax system leaves room for much debate. Organizations like Americans for Fair Taxation believe the U.S. should replace income tax with a national sales tax. In countries around the world, sales taxes are used. Given that U.S. citizens pay much less in taxes than in countries like Canada, Finland, and other parts of Europe, many believe that revenue from sales taxes could completely replace federal income taxes. The FairTax movement aims to replace all income, estate, and payroll taxes with a 23 percent national sales tax–meaning private citizens would no longer have to fill out tax forms come April, and the Internal Revenue Service (IRS) could be abolished.

Others advocate for different fixes. The ongoing national debate seems to be a matter of who should pay more in taxes: the rich, which some contend are “job creators,” who will use their wealth to create jobs. This is a debatable stance, particularly when we consider that the Bush era tax cuts for the wealthy didn’t fix the economy as many had hoped–in fact, some argue they added trillions to the debt, didn’t help the economy and widened income inequality.

Still, taxes are notably much lower than they were in the past. Every American is paying a lower tax burden than they were in 1979, but many see gutted social programs and schools struggling to survive from funding cuts as evidence that these low rates aren’t working.

What can we do?

The tax debate is ongoing and multifaceted. While the issue requires much research and knowledge to determine solutions, the best thing citizens can do right now is to continue to follow the debate by ensuring they understand how U.S. taxes work and how different taxation techniques impact the economy, and make sure their representatives know what they think.

For these purposes, PeopleCount.org has recently released new tax profiles for citizens to share their stance and get the debate going. The income tax issue is complex, but if we truly want to fix our country’s problems, it’s one issue that will require all citizens to be informed and actively engaged.

(Image courtesy Tax Credits, Flickr)