Understanding the American government, especially from the standpoint of business operations, can be challenging. In large measure, this is due to the historical roots of government in the US, a history largely unduplicated elsewhere in the world.
America did not begin as a country, but rather as an amalgamation of thirteen separate countries states that had their origin as British colonies until the Revolution of 1776. These states – now numbering 50 – jealously guarded their independence and agreed to unite only to break away from Great Britain and to have a stronger voice in world trade and defense.
However, the loose confederation thus established functioned poorly, so in 1788 the thirteen states agreed to form a federal government and ratified the current US Constitution. This reserved many powers to the states, though it was stronger than the prior entity. It also reflected much of the liberal thinking of the day as expressed by philosophers like Locke and Rousseau – that is that government should interfere with individual liberty as much as possible and that it should be very difficult for the government to act. As a result, a system of “checks and balances” was created, which has been effective in slowing the American government down.
Things changed dramatically after the end, in 1865, of the American Civil War. The Federal Government successfully defended the union and afterward, the Federal Government grew in power, a trend that was amplified by two World Wars and by the events of the Great Depression. Today, Americans identify themselves as Americans; earlier, they identified as citizens of their state first, and of the US only secondarily.
All that being said, the roots of government are still firmly set in state and local law, and in doing business in America, these are the entities that must be considered. Many Americans go years – or even a lifetime – without interacting with a federal employee. But state and local employees are ubiquitous. Policing, transportation, land use, and even environmental permitting are all local and/or state functions, and starting a business may mean interacting with officials in each of these areas.
Only in taxation, for most businesses, will the federal government be a routine presence. Employers do withhold income taxes, along with Social Security (retirement, disability, survivor benefits) and Medicare (healthcare) from employee paychecks and are responsible for remitting this to the federal bureaucracy. They are also responsible for federal income tax on their profits – but equally, state and local governments often impose similar income tax obligations, though these differ widely from state to state.
In the end, doing business in the USA means obtaining familiarity and good legal and accounting advice about the obligations in the state selected for operations. Fifty states have fifty different systems, though these may be similar in many instances, and each municipality may also impose regulations. Despite widespread belief, the government in the USA begins locally and grows toward the center, and not the reverse.
Author: Peter Winkler, student at LIGS University
This publication was created on the basis of our open webinar: