Q: How progressive is the U.S. tax system and what exactly does that mean?

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Q: How progressive is the U.S. tax system and what exactly does that mean?

A: While Republicans would like to portray rich people as being really hurt by high taxes, the fact is that the U.S. baaaarrrreely has a progressive system. A "progressive" tax is one where higher income people will pay a higher percentage of their income than lower income people. A "regressive" tax is the opposite; a "flat" tax is the same % of income for everyone. For example, if a person earning $20k or $100k has to pay 10% of their income to a particular tax, that would be a flat tax, but if the $100k earner had to pay a 20% tax rate, that would be progressive. Federal income taxes are progressive, while sales tax, gasoline tax, and taxes on cigarettes and alcohol are almost alwaysregressive (higher income people spend a smaller % of their income on such taxed items). The payroll tax for Medicare is a flat tax, while the payroll tax for Social Security is regressive (only levied on income up to $127k, then no tax owed on additional income). The net effect is a much less progressive system than one might think. This chart from the Institute on Taxation and Economic Policy illustrates how the top 1% of income earners get 21.7% of all income in the U.S., and pay 23.8% of all taxes - a little bit progressive, but not very much.

- originally published in the 7/16/2017 newsletter

Stephanie Lee