Progressive Tax System

Progressive Tax System

A progressive tax system, such as the one used by the federal government of the United States of America, consists of different tax “brackets”. In this system the tax payer starts out paying a certain percentage of every dollar as tax, then as the tax payer earns enough to enter the next bracket they are taxed at a different rate.

For example, in the United States in 2015, the brackets for a tax payer filing as single were:

  • 10% of every dollar up to $9,225
  • $922.50 plus 15% of the amount over $9,225 up to $37,450
    • Note that $922.50 = 10% * $9,225
  • $5,156.25 plus 25% of the amount over $37,450 up to $90,750
    • Note that $5,156.25 = ((15% * ($37,450 – $9,225)) + $922.50)
  • $18,481.25 plus 28% of the amount over $90,750 up to $189,300
  • $46,075.25 plus 33% of the amount over $189,300 up to $411,500
  • $119,401.25 plus 35% of the amount over $411,500 up to $413,200
  • $119,996.25 plus 39.6% of the amount over $413,200

As can be seen, every tax payer is assessed at the same rate rather than wealthier tax payers being explicitly charged more, and poorer tax payers pay a lower effective tax rate rather than every tax payer paying a flat rate.

2016-11-18T14:55:27+00:00November 18th, 2016|Tax & Accounting|0 Comments