Inequality in the U.S. Income Tax
The tax system is a significant means to finance a government for its overall spending. And thus, a good tax system should raise government funding in a fair, equal, and sustainable way. The American tax system failed to accomplish its mission: it neither raised sufficient money nor created a fair social and economic environment.
Many blamed the U.S. tax system for being unfair to the people trying to work hard since higher wages lead to higher income tax payments under current progressive income taxation. Despite the unfairness, the U.S. income tax also discourages social and economic mobility, leading to increasing income inequality. Ironically, the income tax is supposed to close the gap between the rich and the poor while it’s actually doing the opposite. In an article, Professor Mankiw at Harvard used himself as an example to illustrate the current income tax system discourages most Americans from working harder. The rich can choose to turn down some of their jobs, but low- and middle-income earners have to suffer from such high marginal tax rates. The second earner in a household, for example, has to pay a higher effective tax than the primary earner even though he or she often has a lower individual income.
Some believe a flat tax should be able to address the issue. This proposal, however, is not realistic when half of the Americans earn $40,100 or less per year. Professor Kearney and Professor Turner proposed to deduct the secondary-earner tax so that low-and middle-income families would have incentives to work and bring their families more financial support. Kearney and Turner want a 20 percent deduction of the earnings up to $60,000 from the second earner in a household. (Kearney & Turner, 2013) This is an easy way to revise the tax system within the existing tax code. Although it would reduce the federal tax revenue, it encourages the citizens to take full-time jobs, increasing economic productivity. Doesn’t this proposal have a positive effect on society compared with the expansion of EITC? What would you say about the inequality of the income tax? What kind of lifestyle would you like and is the government helping you achieve your goals?
1. Krupkin, A., & Gale, W. G. (2017, August 11). Major tax issues in 2017. https://www.brookings.edu/research/major-tax-issues-in-2016-2/.
2. Mankiw, N. G. (2010, October 9). I Can Afford Higher Taxes. But They'll Make Me Work Less. The New York Times. https://www.nytimes.com/2010/10/10/business/economy/10view.html.
3. PK. Average, Median, Top 1%, and all United States Individual Income Percentiles in 2019. https://dqydj.com/average-median-top-individual-income-percentiles/.
4. Kearney, M. S., & Turner, L. J. (2013, December). The Hamilton Project. Giving Secondary Earners a Tax Break: A Proposal to Help Low- and Middle-Income Families. https://www.hamiltonproject.org/assets/legacy/files/downloads_and_links/THP_Kearney_DiscPaper_Final.pdf.