Are you familiar with how the U.S. income tax system works? Do you understand that it is a progressive system that does not tax everyone at the same rate? If not, allow us to explain. Needless to say, it is a system rife with inequities, at least in the eyes of those in the highest tax brackets.
U.S. income tax is based on the total earnings of the taxpayer. Earnings include wages, business profits, rental monies, investment income, etc. Those who make the least pay the smallest amount in taxes. As a progressive system, ours is intrinsically tied to graduated tax rates. As an example:
- single filers making up to $8,925 pay income tax of 10%
- single filers making up to $36,250 pay income tax of 15%
- single filers making up to $87,850 pay income tax of 20%.
As you can see, you pay a greater percentage of your income in taxes the more money you make. The highest tax rate in the U.S. for the 2013 tax year is 39.6% on incomes over $400,001 (single filers).
Wage earners on the low end of the scale tend to think that their higher earning counterparts should pay more taxes. However, few fail to realize just how much more wealthy individuals are paying. Step back just one moment and consider how much you earn every week. Then imagine having the Government take nearly 40% of it to pay your taxes. If you made $400 per week, that would amount to $160. Someone earning $400,001 per year would pay in excess of $160,000 in income taxes.
The inequities built into the progressive income tax system are such that some people are calling for a flat income tax as a replacement. Under the flat system, every taxpayer would pay the same percentage of his/her income in taxes. Nevertheless, the rich would still pay more. At 10%, someone making $50,000 annually would pay $5,000 in income tax while someone making $100,000 would pay $10,000 in tax. The flat system is fair and equitable.