We have a calculation of 4,540 plus 22% of the excess over 44,725. So once again, we have this layered system where we’re not taxing the entire amount at one flat rate. We’re taxing the first portion at a lower rate and then the excess at a higher rate. And finally, if you make over 95,375 but not over 150,000, we have a calculation of 14,652 plus 26% of the excess over 95,375. So as you can see, the tax rate increases as the income or tax base increases, which makes it a progressive tax system.
Now, why do we have a progressive tax system? Well, one of the main reasons is to promote a fair distribution of wealth and income. In other words, the idea is that those who can afford to pay more in taxes should pay a higher percentage of their income in taxes than those who can’t afford it as easily. This helps to fund government programs and services that benefit everyone, such as education, healthcare, infrastructure, and social welfare programs.
However, there are criticisms of the progressive tax system as well. Some argue that it discourages hard work and success by taking away a larger percentage of income from those who earn more. Others argue that it leads to tax avoidance and evasion by the wealthy who can afford to hire tax professionals and find loopholes in the tax code.
Regardless of these criticisms, the progressive tax system remains the basis for the federal income tax system in the United States and many other countries around the world. It is a complex system that requires careful planning and forecasting to ensure that tax revenue is collected fairly and efficiently to support government services and programs.
The progressive tax structure can be quite complex, especially when trying to calculate taxes for future income. Tax tables and tax software can make it easier to calculate taxes, but it still requires understanding how the progressive tax rates work. It’s important to note that going into a higher tax bracket doesn’t mean all of your income is taxed at that higher rate, only the income above the prior threshold is taxed at that higher rate. And while there is a disincentive to earn more as tax rates increase, it’s still important to understand how the progressive tax structure works in order to plan for future taxes.
Calculating taxes can be a complex process that involves taking into account various factors such as deductions, tax credits, and the progressive tax rate. It is important to calculate taxes as income is earned, which can be challenging when projecting income for the year ahead.
Changes in tax laws can also affect the progressiveness of the tax system, which can impact the overall economic growth of a country. While the idea of a more progressive tax system may sound good, it is important to balance this with the need to promote economic growth and development.
Ultimately, taxes play a crucial role in funding government programs and services that benefit citizens, and it is important for individuals and businesses to comply with tax regulations to ensure the stability and growth of the economy.