When we take in all forms of tax are all income levels taxed equal as a percentage of income?
Nope…not even close.
On the face of it the more you make the higher percentage you pay in taxes. When you get to high-end luxury items there is sometimes a luxury tax added that goes beyond straight sales tax. Also, some ways of gaining income traditionally in the realm of the wealthy (such as capital gains) are taxed differently and more heavily. If you die and leave an estate over a certain amount the estate may be subject to an estate tax generally not applied to those of middle or lower income.
Of course, the wealthy also have access to better financial planners and tax people so in some cases are able to “cook the books” (often legally but maybe illegally) and avoid some of these taxes. Tax shelters and off-shore accounts (which may or may not be legal) are also generally available only to those with means (or more accuratley only worthwhile to pursue if you have significant amounts of cash).
This subject is very interesting to me, but not worth the time to download the 1040 a dozen times and calculate the taxes at a dozen different income levels just to get to the answer. I wish someone (else) would draw up a graph of how much taxes you pay at 10,000 a year, versus 20,000, 50,000, and 100,000.
IIRC there was a thread here not too long ago, in my timeframe, that stated if you make above 100,000 a year, which, don’t get me wrong, is a lot of money, but after you factored everything out, you would end up with more take home money if you only made 60,000 a year.
Matter of fact, I’m off to find that thread…
The basic system of U.S. taxes on income is the graduated income tax. It is a progressive tax – that is, it taxes the wealthy more than the poor. (At least ostensibly; see below.) People who make very little money pay nothing in taxes. People who earn more than those folks pay tax at 10% on that extra amount. People who earn more than that pay tax of 15% on the extra amount. People who earn more than that pay 25% on the extra amount, etc., etc. up to a top rate of 35%. This is a marginal rate, meaning (as I’ve noted) that you only pay that on the dollars you earn after the bracket goes up. Going to a higher bracket doesn’t mean you lose money, it just means that every pre-tax dollar you earn from then on is worth less (because Uncle Sam gets a bigger cut). (Back in the 40’s, the very richest people had a marginal tax rate of something like 90%!)
As Whack-a-Mole notes, the rich actually do not pay nearly as much in taxes as one might expect just by looking at the tax bracket rates. There are many reasons for this, some of which Whack mentions. One big one is that the rich are the ones who can afford the best tax planners and the best financial advisers who can help them legally avoid taxes, whereas less wealthy folks either can’t or it’s not economically rational for them to waste all the money hiring a tax planner just to protect a small amount. Probably the biggest contributor to this, however, is that the rich are much more likely to make a significant portion of their income on capital gains – income from the purchase and sale of investments rather than from a salary or other wages. Whack is incorrect on this point; long-term capital gains (gains from the sale of an investment you’ve held for over a year) are actually taxed at a significantly lower rate than wage income; people whose marginal rate on wages is taxed at 25-35% pay only 15% or 20% on long-term capital gains. (It’s actually more complex than this, but you get the gist.)
–Cliffy