Unpacking Federal Income Tax: Progressive or Flat Rates?
Are federal income tax rates progressive or flat? Please expound
Federal income tax rates in the United States are progressive, not flat. A progressive tax system is structured so that the tax rate increases as the taxable income increases. Essentially, the more you earn, the higher your tax rate will be.
Here's a brief explanation of the two systems:
1. **Progressive Tax Rates:** Under this system, there are multiple tax brackets, each applied to a different income range. The percentage applied for tax increases as a taxpayer's income grows. As a taxpayer earns more and crosses into a higher tax bracket, only the income in that bracket is taxed at the new rate, not all of their income. For example, if an individual taxpayer has a taxable income of $50,000 in 2021, they would not pay 22% on the whole amount, but 10% on the first $9,950, 12% on the next $30,575, and then 22% on the remaining $9,475.
2. **Flat Tax Rates:** Under a flat tax, all taxpayers are charged the same tax rate, regardless of their income. This is not the system currently used in the United States for federal income tax, although some states do use flat tax rates for state income tax.
In the United States, the purpose of progressive tax rates is to distribute the tax burden more evenly among taxpayers, ensuring that individuals with higher income contribute a larger share of their income in taxes compared to those with lower income.