Taxes & Tax Policy

Progressive Tax

A tax that takes higher proportions of income at higher income levels; the federal income tax is the most important example.

Regressive Tax

A tax that takes higher proportions of income at lower income levels; sales tax is regressive because low-income households spend a higher proportion of their income on taxable goods.

Earned Income Tax Credit (EITC)

A tax credit allowing low-wage workers to claim a refund larger than their payroll deductions; "a pay raise for the working poor"; the biggest cash transfer program for low-income families.

Effective Tax Rate

The proportion of income people actually pay in taxes after various deductions, exemptions, and credits.

Marginal Tax Rate

The percentage of tax you pay on your next dollar of income. Only the portion of your income that falls within a specific bracket is taxed at that rate; the "sticker price" rate for the highest tax bracket.

Tax Policy Since the 1980s

Top marginal income tax rates, capital gains taxes, corporate taxes, and estate taxes reduced; effective tax rates for top 1% fell about 10%; payroll taxes for bottom 50% rose; tax system increasingly favors capital income over labor income.

Capital Gains Tax Rate

The tax rate on earnings from the sale of assets like stocks or real estate; lower than equivalent tax rates on wages; you pay nothing until assets are sold.

Estate Tax (Death Tax)

A federal tax levied on the assets of wealthy decedents before passing to heirs; top 1% now pay 10% less than in the 1950s (40-45% then vs. now).

Secret IRS Files Finding

The top 25 richest Americans (2014-2018) had a true tax rate of only 3.4%; billionaires avoid taxes by holding assets (not sold = no tax), taking loans (not income), charitable foundations, and offshoring profits.