Tax Policy
America uses a progressive tax system. “Progressive” is a reference to the fact that as you earn more money, not only do you pay more tax, you also pay a higher percentage of your income in taxes. This gives the word “progressive” a sort of double entendre, since progressives generally favor it. Conservatives generally want to flatten the tax rate, so that all parties pay equally.
Because of the fact that tax eventually becomes 0% as income goes lower, many Americans pay no tax at all. Conversely, a handful of very wealthy Americans carry most of the tax burden in America.
The National Taxpayers Union has prepared chats illustrating which segments of the population pay taxes, and how much they pay. As the charts demonstrate, if you are one of the bottom 50% of income earners, you contribute virtually nothing to the tax base. This seems fair for the anti-business, class-warfare crowd, but it has the hidden effect of making that group be less judicious with the way taxes are spent. After all, who cares how someone else’s money is spent, right?
Despite the obvious class hatred this system fosters, it’s also bad business for the government. Because of the relatively small number of tax payers who pay the lion’s share of taxes, the system is highly leveraged. In the recession of 2007, this was very pronounced in U.S. Federal tax receipts.
Just like a business which sells only products which cost $10,000 and up would be very damaged in a recession, so too, is the U.S. government. This phenomenon is not unique to America. Other progressive tax countries and U.S. States have seen similar situations play out when times get tough.
Until America imposes a low, flat tax for all of its citizens, we can expect volatility in tax revenues. We can also expect an angry majority to continue their demands on those who pay the vast majority of taxes.