A progressive income tax is supposed to take more money from persons with higher incomes. The basic idea is that the more money you make, the more taxes you will pay. In a progressive tax there are brackets, a person making $50,000 a year might pay a 5% tax and someone making $100,000 a year would pay 10%.
The original idea behind the progressive income tax in the United States was an income redistribution scheme. The concept was that the rich would pay more in taxes which would finance government services to help the poor.
Proponents of such taxes believe that they can eliminate disparities of wealth and poverty. Opponents contend that the tax never works as advertised and that many working people end up paying it while the rich can manipulate the tax code to get out of paying.
The Politics behind the Progressive Income Tax
The progressive income tax was first promoted by politicians such as Theodore Roosevelt and Woodrow Wilson in the early 1900s. These leaders believed that large concentrations of wealth were bad for society so they sought to break them up. They linked the tax to income levels in order to take more money from the wealthy.
Originally the tax worked much as they had intended and only the very wealthy paid. In the century since the tax has been extended so that almost all Americans pay it. Many states also implemented versions of the progressive income tax.
Since it has become very easy for wealthy individuals to deduct income from taxation some critics contend the tax is no longer effective. Others contend that it has become a tax on the middle class. Despite widespread dislike of this levy there is little likelihood that it will go away anytime soon. Many political leaders particularly in the Democratic Party are committed to preserving it.
How it Works Today
The current Internal Revenue Code mandates several different tax brackets. Your tax bracket determines what percentage of your income you will pay in income tax. Your tax bracket is based on your taxable income not your actual income. Your taxable income is determined by subtracting your deductions and exemptions from the amount of money you make. The difference determines your taxable income.
The reason you fill out a tax return and try to get as many deductions and exemptions as you can every year is to get yourself into a lower tax bracket. Under the current system there are six federal income tax rates: 10%, 15%, 25%, 28%, 33% and 35%. In the past federal income tax rates have been much higher for wealthier individuals.
Some states have progressive income taxes but many states have moved to a flat tax system. Under the flat tax everybody pays the same rate regardless of income. The advantage to that system is that everybody has to pay. The disadvantage is that it can be more of a burden on the poor and the working class.
Something to be aware of is that the US federal income tax system is not entirely progressive. The FICA or withholding tax on salaries is collected on a flat percentage basis. That means everybody pays the same rate regardless of income level. There has also been some political pressure to make the withholding tax progressive so wealthier individuals pay more.
The Patient Protection and Affordable Care Act (Obamacare) of 2010 mandated a sort of progressive income tax; a 3.8 percent surtax on investment income, for those making more than $250,000 a year. This could be an example of what future progressive income taxes will look like.