By Chapter 1 of the Internal Revenue Code a tax is imposed on the annual income of all individuals who are citizens of the United States regardless of their place of residence and of all residents of the United States regardless of their nationality, and of all corporations organized under domestic law. The entire income of each is subject to tax regardless of domestic or foreign origin with the exception of elements specifically exempted. On the other hand, nonresident alien individuals and foreign corporations are taxable only on income from sources within the United States.
The income of the individual citizen or resident, as reduced by allowable deductions and exemptions, is subject to a normal tax of 3 percent and to a surtax at rates which begin at 19.2 percent on the first $2,000, increase to 21.6 percent on the next $2,000, and progress to a maximum of 89 percent on the amount of income in excess of $200,000. The combined normal and surtax rate thus ranges from 22.2 percent of taxable income not in excess of $2,000 to 92 percent of that portion which exceeds $200,000. (For the head of a household the increase in rate is lower, reaching 92 percent at $300,000.) It is to be noted that under this scheme the tax on a net income of $500,000 is not 92 percent of $500,000 but a lesser figure which reflects the several lesser rates on portions of the income below $200,000. Furthermore, it is provided that in no event shall the tax exceed 88 percent of the total net income.*____________________