Taxes — they’re a constant part of life. From the payroll deductions on your paycheck to the sales tax added at the register, the money we pay to the government seems like an unavoidable reality. But have you ever stopped to think about how the government decides how much we pay in taxes and who ultimately determines how the system is structured? Is it a fair system, or is it designed to benefit the wealthy and corporations?
In this post, we’ll dive into how taxes are set in the United States, why the current system is flawed, and how a progressive approach to taxation could create a fairer, more equitable society. Spoiler alert: The wealthy and big corporations aren’t paying their fair share, and the working class often bears the brunt of an inequitable tax system.
1. The Basics: How Taxes Are Determined
Taxes in the United States are levied at multiple levels of government, including federal, state, and local. But let’s focus on federal taxes, which are the most significant when it comes to shaping how much you pay and where your money goes.
A. The Federal Tax Code
The Internal Revenue Service (IRS) is the body responsible for collecting taxes, but the tax rates and structure are determined by Congress. Every year, lawmakers in Congress decide on tax laws, which are influenced by the political climate, economic conditions, and the party in power. They vote on things like:
- Income tax rates: The percentage of your income that you must pay in taxes.
- Deductions and exemptions: These are reductions in taxable income that lower the amount you owe.
- Corporate tax rates: The percentage of profits that businesses must pay in taxes.
The tax code is progressive for individuals, meaning those who earn more pay a higher percentage of their income in taxes. However, corporate taxes have been historically low — and this is where the problems begin.
2. The Wealthy and Corporations: The Biggest Tax Dodgers
One of the most significant issues in the U.S. tax system is that the wealthy and corporations aren’t paying their fair share. While ordinary workers are taxed heavily through things like payroll taxes and sales taxes, billionaires and large corporations find ways to avoid taxes through various loopholes, offshore accounts, and other methods.
A. The Corporate Tax Loopholes
For years, large corporations have lobbied for tax breaks and loopholes that have allowed them to avoid paying a significant portion of taxes. The 2017 Tax Cuts and Jobs Act passed by the Trump administration is a perfect example. This legislation slashed the corporate tax rate from 35% to 21%, resulting in a massive windfall for big businesses and the wealthy elite.
Many corporations also take advantage of offshoring profits — shifting their profits to other countries with lower tax rates — and tax deductions for things like research and development, which further reduce their tax burdens.
B. Wealthy Individuals and the “Carried Interest” Loophole
Wealthy individuals, especially hedge fund managers and private equity firms, benefit from a loophole called carried interest, which allows them to pay taxes at a lower rate (the capital gains tax rate) instead of the ordinary income tax rate. This allows them to pay as little as 15% in taxes, despite making billions of dollars — far less than the middle class.
3. The Middle Class and Working Families: Bearing the Burden
While the wealthy and corporations exploit loopholes, it’s the middle class and working families who feel the pinch of the U.S. tax system. These groups are more likely to pay higher percentages of their income in taxes through payroll taxes (like Social Security and Medicare), sales taxes, and state income taxes.
A. Payroll Taxes and the Working Class
One of the biggest burdens on working families is the payroll tax, which funds programs like Social Security and Medicare. This tax is flat, meaning it takes the same percentage from all workers regardless of income. While these programs provide essential services, the fact that high-income earners don’t pay into the system at the same rate as the rest of us is problematic.
4. Why Progressive Taxation Matters
Now, let’s talk about the progressive taxation system and how it could change the way the government collects revenue. A progressive tax system is one where higher income earners pay a larger percentage of their income in taxes.
In theory, this system ensures that wealthy individuals and corporations contribute more to funding public services like education, healthcare, infrastructure, and more. But because the current system is riddled with loopholes, exemptions, and unfair deductions, the burden often falls on ordinary workers.
5. A Progressive Approach to Taxation: Closing Loopholes and Increasing Equity
So, how can we reimagine the U.S. tax system to make it more equitable and ensure that everyone pays their fair share?
A. Closing Corporate Loopholes
First and foremost, we need to close the loopholes that allow corporations to pay a minuscule percentage of their profits in taxes. A global minimum tax could ensure that corporations pay a fair share of taxes regardless of where they operate.
B. Implementing a Wealth Tax
A wealth tax on the ultra-wealthy — people who have billions of dollars in assets — could generate substantial revenue to fund essential services. Progressive voices argue that this would level the playing field and ensure that the wealthiest 1% contribute more to the common good.
C. Reversing Tax Cuts for the Rich
A progressive tax agenda also calls for reversing tax cuts for the rich, like those enacted in 2017. Raising the corporate tax rate back to a reasonable level and implementing higher marginal tax rates for the wealthy would help reduce the income inequality that plagues the U.S.
D. Fairer Payroll Taxes
Reforming payroll taxes so that high-income earners pay a more equitable share could help reduce the burden on working families. Additionally, increasing the Social Security cap (currently set at around $142,800) would mean that the wealthiest individuals contribute more to the system.
6. Conclusion: The Need for a More Equitable Tax System
Ultimately, taxes are not just about what individuals and corporations pay. They are about redistribution of wealth, ensuring that the burden of government services is shared fairly and equitably. In a progressive vision, taxes serve as a tool to reduce the economic disparity between the ultra-wealthy and working families. It’s time for a reform that targets the wealthiest corporations and individuals who benefit from tax loopholes, while ensuring that the working class doesn’t bear the brunt of a broken system.
Taxes should reflect fairness and equity. Until that happens, we will continue to see a system where the rich get richer and the poor get poorer.