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State and local tax rates vary widely by jurisdiction, from 0% to 13.30% of income, and many are graduated. Federal marginal tax rates vary from 10% to 37% of taxable income. State rules for determining taxable income often differ from federal rules. Individuals are permitted to reduce taxable income by personal allowances and certain non-business expenses, including home mortgage interest, state and local taxes, charitable contributions, and medical and certain other expenses incurred above certain percentages of income. Most business expenses reduce taxable income, though limits apply to a few expenses. Income subject to tax is determined under tax accounting rules, not financial accounting principles, and includes almost all income from whatever source, except that as a result of the enactment of the Inflation Reduction Act of 2022, large corporations are subject to a 15% minimum tax for which the starting point is annual financial statement income. Citizens and residents are taxed on worldwide income and allowed a credit for foreign taxes. Taxes are imposed on net income of individuals and corporations by the federal, most state, and some local governments. Divergent taxes and subsidies for different forms of income and spending can also constitute a form of indirect taxation of some activities over others. Taxes fall much more heavily on labor income than on capital income. As a group, the lowest earning workers, especially those with dependents, pay no income taxes and may actually receive a small subsidy from the federal government (from child credits and the Earned Income Tax Credit). tax and transfer policies are progressive and therefore reduce effective income inequality, as rates of tax generally increase as taxable income increases. In 2020, taxes collected by federal, state, and local governments amounted to 25.5% of GDP, below the OECD average of 33.5% of GDP. Taxes are levied on income, payroll, property, sales, capital gains, dividends, imports, estates and gifts, as well as various fees. The United States of America has separate federal, state, and local governments with taxes imposed at each of these levels.
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