Why are taxes so high? This is the main question every American is asking nowadays. Well, the taxes are not only high, but the tax system is all the more complicated to understand.
Let’s see what is wrong with the American tax system and why the distribution is unequal.
Before we dive deep into the details, let us make a point. The United States follows the progressive tax system.
What is the progressive tax system, then?
What does the progressive tax system mean?
In a progressive tax system, people who earn more money are required to pay more taxes. The main concept behind this kind of tax system is fairness, which underlines the importance of ‘ability to pay.’
The big question is: why Americans are scratching their heads and are shouting in anger, ‘why are taxes so high?’
If you are here to understand the North American taxing system, then we regret to inform you, not even a certified accountant can keep track of ever-growing 74608-page tax codes. We will only highlight the main problems within the American tax system.
However, before we start, have a look at a brief history, the seed that ended up becoming into a tree of unequal taxation among the natives.
Brief history of American taxes
Tax rates in the US have never been static. There have been falls and surges in the payable tax amount over time. For example, during the early twentieth century, the high earners were expected to pay around 80% of their taxable income. However, after the Great Depression, the amount fell to 25%. Similarly, after World War II, the top marginal tax rate increased to 70%.
If we take into account the recent times, during the 1980s, the tax amount for high-income earners fell to 50% under the rule of President Reagan, and then it further fell to 25% in 1988. Since then the marginal value tends to fluctuate between 25 and 41 percent.
If things were going smoothly, then what hampered the American tax system?
What are the problems with the american tax system?
The American Tax system has many flaws. However, we will mention the four primary problems that have compelled the citizens to fume over, ‘why are taxes so high?’
Complicated tax system
Although we can consider the American tax system a progressive one, the 74608-page long book that contains the tax code is not only difficult for the normal public to understand and analyze, but even certified accountants have a hard time keeping themselves updated.
Around 80,000 employees run this time-consuming and complex system, which costs around $11 billion.
The most debatable feature of this convoluted tax system is that it has become regressive instead of progressive. If you remember, in progressive tax system, high-income earners pay more taxes. However, recent statistics suggest the opposite.
In 2015, the marginal rate peaked at 29.9% on $2-$5 million income bracket. Later it fell to 28.8% for $5-$10 million income bracket. Moreover, it fell further to 25.9% for those who earn $10 million and above.
If we go over the statistics, we can see how the tax rate for wealthier people has decreased over time. The high-income earners save more on taxes because they have multiple ways to secure their wealth, and abandon taxes. On the other hand, the middle class people face all the unfair burden of low-income with higher taxes.
The economy gets slow
Placing a high tax on the active income hampers economic growth. On average, the amount that a middle-class employee pays in taxes, roughly equals the actual salary he earns. Whereas, the tax amount that a wealthy individual pays is just a fraction of his total income. It is because wealthy people tend to make their income by using different avenues, including, but not limited to capital gains, interests, business profits, etc.
This unfair distribution of tax rate results in lowering the consumer spending of the middle-class society that affects directly on the US economy.
The tax system is inefficient
Although there is a long rulebook of more than seven thousand pages, the income generation process is inadequate. Moreover, the situation will worsen as the workforce is decreasing and the number of retired officials is increasing. In short, the American tax system undermines the natives and corporations rather than lifting them and supporting them.
Before we conclude this article, be aware that paying taxes is your responsibility, but the question is, when will we be able to quash this kind of ineffective tax system for good.