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Agreed up until the last part. The standard deduction is progressive, it provides a much bigger benefit to lower income earners than it does to mid/high income
by sgerenser 6y ago
Agreed up until the last part. The standard deduction is progressive, it provides a much bigger benefit to lower income earners than it does to mid/high income earners.
- cletus 6y agoConsider a simplified tax system: - 10% of the first $100,000 - 20% of the remaining - The standard deduction is $20,000 Now consider three incomes: $40,000, $80,000 and $200,000. 1. $40,000 is $4,000 (10%) tax to $2,000 (5%) 2. $80,000 is $8,000 (10%) tax to $6,000 (7.5%) 3. $200,000 is $30,000 (15%) tax to $26,000 (13%) So on the face of it it seems progressive and would be if it wasn't for the fact that it offsets itemized deductions. Imagine each person above could deduct 25% of their income: 1. No change. 2. No change. 3. $50,000 deduction, which is an additional $30,000 of $6,000 in savings. So the highest income earners still get itemized deductions and both the standard and itemized deductions are offsetting a marginal higher tax rate. The point is that the "standard deduction" is (IMHO) dishonest. You can achieve a progressive tax system by... just having a progressive tax system.
- ChrisLomont 6y agoThe US does have a progressive tax system. Here's effective federal tax rates. Throw on inheritance tax on top of these and it gets extremely progressive. https://www.cbo.gov/sites/default/files/110th-congress-2007-2008/reports/12-23-effectivetaxratesletter.pdf https://www.cbo.gov/sites/default/files/110th-congress-2007-...