Flat taxes are regressive10/7/2023 ![]() ![]() Suppose that a single taxpayer’s income is $35,000 per year. The marginal tax rate (the tax rate that one pays on the highest income they earn) for a single taxpayer range from 10% to 37%, depending on income, as the following feature explains. Thus, if you receive the same benefit, you should pay the same tax. Contrast this with the benefit principle, which argues that tax payers should pay in proportion to the benefit they receive from public goods or services. The income tax is designed to be a progressive tax, which means that the marginal tax rate increases as a household’s income increases. As your income rises, you move into a higher tax bracket, which means you pay a higher rate on that additional income. Taxes also vary with marital status, family size, and other factors. Progressive taxes are justified by the ability to pay principle, which argues that citizens with more income or wealth should pay at a higher rate since they have a greater ability to pay. Marginal tax rates are closely related to the concept of tax brackets. Taxes can be described as progressive, proportional or regressive depending on how the marginal tax rate one pays changes at different income levels, as described in the feature below. Although personal income tax revenues account for more total revenue than the payroll tax, nearly three-quarters of households pay more in payroll taxes than in income taxes. ![]() Together, the personal income tax and the payroll tax accounted for about 84% of federal tax revenues in 2012. Payroll taxes have increased steadily over time. ![]() The second largest source of federal revenue is the payroll tax , which provides funds for Social Security and Medicare. The personal income tax is the largest single source of federal government revenue, but it still represents less than half of federal tax revenue. When most people think of taxes levied by the federal government, the first tax that comes to mind is the individual income tax that is due every year on April 15 (or the first business day after). Figure 1 also shows the patterns of taxation for the main categories of taxes levied by the federal government: personal income taxes, payroll taxes, corporate income taxes, and excise taxes. ![]()
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