{"id":125642,"date":"2019-01-14T12:00:01","date_gmt":"2019-01-14T12:00:01","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=125642"},"modified":"2019-01-09T13:44:13","modified_gmt":"2019-01-09T13:44:13","slug":"progressive-tax-with-examples","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2019\/01\/progressive-tax-with-examples\/","title":{"rendered":"Progressive Tax with Examples"},"content":{"rendered":"

How a Progressive Tax System Helps You Even if You Are Not Poor <\/em><\/p><\/blockquote>\n

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Getty Images<\/p><\/div>\n

28 Dec 2018 – <\/em>A\u00a0progressive\u00a0tax<\/a>\u00a0imposes a higher rate on the wealthy than on the poor. It is based on the taxpayer’s\u00a0ability to pay.<\/p>\n

Why should the wealthy pay a greater portion of their income to the government? Poor families spend a larger share\u00a0of their income on the\u00a0cost of living<\/a>. They need all the money they earn to afford basics like shelter, food, and transportation. A tax decreases their ability to afford a decent\u00a0standard of living<\/a>.<\/p>\n

The wealthy, on the other hand, can afford the basics.\u00a0A tax decreases their ability to invest in\u00a0stocks, add to retirement savings, or purchase luxury items.<\/p>\n

The\u00a02015 Consumer Expenditures Report<\/a>\u00a0illustrates this point. It found that\u00a0the lowest-earning fifth of the population spent $24,470 in 2015. Of that, they spent 15 percent on food, 35 percent on shelter and utilities, but just 2 percent on retirement savings. The highest-earning fifth spent $110,508. Of that, they spent 11 percent on food, 33 percent on shelter and utilities, and 14 percent on retirement savings.<\/p>\n

Examples<\/strong><\/p>\n

The U.S.<\/strong>\u00a0income tax<\/strong>\u00a0is progressive. The tax rates get\u00a0higher as income increases.\u00a0Here are the\u00a02018-2025 federal income tax rates<\/a>\u00a0for singles and married couples filing jointly. The income levels are for after-tax income after all exemptions and deductions have been taken. You can see how those in the higher income brackets pay a higher tax rate.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n
Income Tax\u00a0Rate<\/strong><\/td>\nIncome Levels for Those Filing As:<\/strong><\/td>\n<\/tr>\n<\/thead>\n
Current<\/strong><\/td>\nSingle<\/strong><\/td>\nMarried-Joint<\/strong><\/td>\n<\/tr>\n
10%<\/td>\n$0-$9,525<\/td>\n$0-$19,050<\/td>\n<\/tr>\n
12%<\/td>\n$9,325-$38,700<\/td>\n$19,050-$77,400<\/td>\n<\/tr>\n
22%<\/td>\n$38,700-$82,500<\/td>\n$77,400-$165,000<\/td>\n<\/tr>\n
24%<\/td>\n$82,500-$157,500<\/td>\n$165,000-$315,000<\/td>\n<\/tr>\n
32%<\/td>\n$157,500-$200,000<\/td>\n$315,000-$400,000<\/td>\n<\/tr>\n
35%<\/td>\n$200,000-$500,000<\/td>\n$400,000-$600,000<\/td>\n<\/tr>\n
37%<\/td>\n$500,000+<\/td>\n$600,000+<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

The\u00a0Obamacare income tax<\/a><\/strong>\u00a0is\u00a0progressive.<\/p>\n

It only applies\u00a0to those who\u00a0make more than $200,000 a year or to those who are married, earning more than $250,000 annually, and are filing jointly. It levies an additional 0.9 percent\u00a0Medicare hospital tax on any income and self-employment profits above the thresholds. It also levies an extra\u00a03.8 percent on investment income<\/a>. That includes dividends and capital gains that are\u00a0above the threshold.<\/p>\n

Investment income taxes<\/strong>\u00a0are progressive. They target income that wealthier families can afford better than poor families. Taxes on capital gains and dividends are 15 percent if they are held for at least a year. Some critics argue that these taxes aren’t progressive enough. Investment income should be taxed at regular income tax rates. Many wealthy people receive all their income from these investments. They are receiving almost the lowest tax rate.<\/p>\n

Tax on interest earned<\/strong> is progressive for the same reason investment taxes are. They only apply to those who have enough income to save and received interest.<\/p>\n

Rental earnings<\/a><\/strong> are assessed like income tax rates. But property owners can deduct all costs. Losses from any one property can be deducted from other properties. Some wealthy landlords can use those deductions to avoid all taxes.<\/p>\n

As a result, taxes on rentals are both progressive and regressive, depending on how the business is run.<\/p>\n

The\u00a0estate tax<\/a><\/strong>\u00a0is very progressive. It is levied on assets children inherit from their parents. It is 40 percent on amounts greater than $5.43 million. The\u00a0Trump tax plan<\/a>\u00a0has increased the exemption level for\u00a0this tax, making it a bit less progressive.<\/p>\n

Tax credits<\/strong><\/a> for the poor are also progressive. They are subtracted from the person’s tax owed, reducing taxes by the amount of the credit. They are progressive because the amount saved means more to a person with less income. Some credits\u00a0are even more progressive because they are only available for those living below a certain income level.<\/p>\n