The tax system of the United States of America, the one that applies to all of us, can be relatively easy to understand but is expansive and complicated at its core — I won’t be going over every tiny detail in this article because I can’t.
First, here are the three main tax systems you might hear in conversation and what each of them mean. The proportional tax, also called the flat tax, is a tax system many would want the U.S. to adopt. Basically, no matter how much money you earn, you would pay the same percent tax on the total sum of your earnings, simple.
Next is the regressive tax system, a system many are glad we don’t have. In the regressive tax system, the more money you make, the less overall percentage of your earnings you would pay in taxes. This tax system highly benefits the wealthy and disproportionately hurts the middle and lower classes.
The last tax system, the one we are currently all subject to, is called the progressive tax system. In this system, the more money you earn, the more you pay, but not exactly. This tax system is broken into brackets. An example is that you are making $50,000 a year. The first tax bracket is set from $0–$20,000 at a 10% tax rate. There is another tax bracket from $20,001–$35,000 with a 15% tax rate, and another from $35,001–$50,000 with a 20% tax rate.
In the progressive tax system, all the money you earn up until $20,000 will be taxed at 10%. Next, all money you earn over that $20,000 mark, up until $35,000, will be taxed at a higher tax rate of 15%. This means that all money you earn over $35,000 up until $50,000 will be taxed at 20%, and soon and so on.
So, this means that when you earn more money, you don’t get taxed more on all your money just because you are earning a little more, but rather that little bit in excess that you are earning now, if in another tax bracket, gets taxed at that rate separately.
I know, it sounds complicated, but it is actually really simple, and I recommend you go to the website linked below, Investopedia, to read more into these three tax systems and more.
Taxes can be implemented in many different ways, but they can also take many different forms as well. You pay federal, state and local taxes. There are income, sales and property taxes. In short, you get taxed for a lot of things and get taxed in a lot of different ways, and the amount of taxes you pay often depends on where you live.
States have different sales taxes and have different taxes on different things. An example would be Philadelphia’s tax on soda: when you are within city limits, you will be taxed on your soda purchase, but outside of the city you wouldn’t have to pay that tax.
Taxes can be overwhelming and political, as conservatives usually advocate for tax cuts and liberals wish for more. No matter where you lean, taxes are important, as they pay for our roads, bridges, buildings and government programs. Taxes pay for anything, from education to the military, and are imperative for a healthy economy if used correctly.
My advice for you is to seek to understand how taxes work where you live, seeing how much you pay, where it goes and what it is used for. There was a lot I was unable to cover, and I implore you to learn more. Investopedia is a great start, and you could always ask professors in the business department, too.
Evan Brooks is a third-year Business Management major with minors in Economics and Civic and Professional Leadership. EB916132@wcupa.edu