The tax bracket determines the tax rate for which a taxpayer is liable. The taxing structure in the US can be classified as a progressive tax system. The general rule of a progressive tax system is, the higher one’s income is, the higher his or her tax rate. Conversely, lower income individuals fall in to lower tax brackets with lower rates. Of course, not all income earners of the same approximate income pay the same tax. Additionally, taxes are also dependent on one’s job title. Taxes differ based on a taxpayer’s primary income source.
For example, wage earners are the hardest hit income earners, with respect to taxes, while self-employed earners may have the ability to itemize their deductions, therefore reducing their overall tax liability. Taxes also differ for those whose primary income comes from investments such as stocks, real estate, and other types of investments.
Tax Bracket Specifics
There are currently seven federal tax brackets. Inflation is adjusted yearly when determining tax brackets. Rates range from 10% to 37%, from lowest to highest. Additionally, there are three separate filer options: unmarried individuals, married individuals and head of household. Taking the three different filing options in account, the seven federal tax brackets are essentially 28 brackets. A simple calculation of an individual’s taxable income is the primary indicator for which tax bracket is applicable. An individual’s taxable income is all earned income subtracted by deductions, personal exemptions and adjustments.
Every tax bracket has a different tax rate, or marginal rate. The percentage at which income is taxed is known as a tax rate. Because most individuals have income that is taxed progressively, more than one rate can be used to determine their payments due.
Having a tax bracket of 24% does not mean that you need to pay a 24% tax on all earned income. The progressive tax system we are under requires individuals with larger incomes to pay more in taxes and those with lower incomes to not have to pay as much. Taxes owed are split up into sections, or tax brackets, and each bracket gets assigned a matching tax rate.
To balance the inequality of income distribution, the progressive tax system demands more from the wealthy than from the poor and middle class. Advocates agree that the wealthy have the means to live comfortably with a high quality of life, while paying more in income taxes. Conversely, they agree that lower class individuals who cannot afford to live a comfortable life should be taxed less. Taxes should not be so burdensome, especially to individuals who are struggling to make a living. Additionally, advocates of the progressive tax system claim that the system promotes equality for taxpayers by offering adjustments such as tax deductions and tax credits, while benefiting the government through revenue.
Those against the progressive tax system and tax brackets claim that all people, no matter their economic standing are equal and should not be treated unfairly, as they are expected to pay more just because they have more to give. They view this progressive tax system as discriminating between the poor and rich and claim it unfair because they believe they at least deserve more government representation if they pay more in to the system. Nonetheless, each person is only granted one vote even if they pay an outstanding amount more in taxes. Moreover, these people also believe that increased taxation of higher income earners leads to the wealthy’s strong focus on exploiting loopholes and other methods to cheat on taxes and thus, wind up paying less taxes than the individuals who earn less.
