Understanding the US Progressive Income Tax System

The US income tax system, particularly the Federal income tax, is designed to be progressive. This means that the tax rate increases as the taxable income rises. However, the concept of progressivity is nuanced and can sometimes be misleading in practice.

Rates and Brackets

For the Federal income tax in the United States, the tax rates for single and married filing jointly filers are as follows:

Single: 10% up to $9,950; 12% over $9,950 to $40,525; 22% over $40,525 to $86,375; 24% over $86,375 to $164,925; and so on. Married Filing Jointly: 10% up to $19,900; 12% over $19,900 to $81,050; 22% over $81,050 to $172,750; 24% over $172,750 to $329,850; and so on.

It's important to note that these rates apply to taxable income, which is income after various deductions and exemptions, as opposed to total income.

Progressivity in Theory vs. Reality

Theoretically, the US income tax system is progressive. Higher income brackets face progressively higher tax rates. However, in reality, this progressivity is often diluted by various factors.

For instance, Warren Buffett famously pointed out that he paid a lower percentage of income tax than his secretary, David Cay Johnston. This is a regular occurrence due to numerous tax deductions and loopholes that favor higher income earners. Despite this, the top marginal tax rates are significantly higher than those of many other developed countries.

Total Tax Revenue and GNP

When considering the overall tax revenue as a percentage of Gross National Product (GNP), the United States ranks poorly among developed nations. In fact, the United States contracts its tax revenue as a percentage of GNP, standing alongside countries like Mexico and Turkey. This is according to data provided by the Organisation for Economic Co-operation and Development (OECD).

State and City Taxes

State and city taxes further complicate the picture. Many states have their own progressive income taxes, ranging from a single, flat rate to multiple brackets. For example:

California: Brackets range from 1% to 12.3%. The exact deductions vary. New York City: Income tax rates are 3.078%, 3.762%, 3.819%, and 3.876%, in addition to the state tax.

Some states, like Texas and Florida, do not levy a state income tax at all, making them more attractive for certain types of economic activities.

Progressivity and Fairness

Despite the progressive tax system, the reality is that the design and implementation are often flawed, riddled with loopholes that predominantly benefit politically connected groups. This has led to a situation where the tax system is perceived as unfair to the middle class.

The term 'progressive' has thus lost much of its true meaning in the context of US taxation. Without addressing these loopholes and ensuring a more equitable distribution of tax burden, the current system fails to live up to the principles of progressivity.

Fairness and Reform

To truly make the tax system progressive and fair, significant reforms are necessary. This includes closing loopholes, simplifying the tax code, and ensuring that high-income earners contribute a proportionate share of their income towards public services and infrastructure.

Transitioning towards a more progressive and fair tax system would not only address the current inequalities but also foster economic health and stability.