Federal taxes and fairnessIn the United States, tax revenue is collected at each governmental level - federal, state, and local. Income tax is the preferred method at the federal and state levels. In 2022, individual income taxes and payroll taxes were two highest earners for the government by a significant margin. Alongside the majority of countries around the world, the United States maintains a progressive system of tax - meaning that those with higher incomes pay a higher share of their income in taxes. Progressive tax systems are thought to decrease income inequality, especially if the revenue generated goes towards social safety nets.
However, the U.S. famously spends vast amounts on its military, more than any other country. This perhaps contributes to feelings amongst more than half of Americans who feel their tax burden is too high, as much of the money generated through taxes is not visibly reinvested back into society. Additionally, there tends to be a perception that the wealthiest individuals are not paying their fair share. In recent years, targeted wealth taxes such as a tax on billionaires have gained traction in both the public and political spheres.
Corporate and behavioral taxesFederal and state governments are additionally able to generate revenue through taxes on corporate profits. The amount of tax corporations should have to pay is a topic of heavy debate. Many large companies have come under fire for paying no tax, despite generating billions of dollars in profit. While this feels unfair to many Americans, proponents of low-corporation tax maintain that a lower tax burden encourages investment and leads to economic growth. The U.S. corporate tax rate has fallen dramatically in the last decades - 1993, the highest corporate tax rate in the U.S. fell from 53 percent to 38 percent, and since 2018, the corporate tax rate is a flat tax of 21 percent.
At times, taxes are implemented for reasons other than revenue generation. One often cited example is the high percentage of tax on alcohol, cigarettes, and more recently marijuana. These kinds of taxes are thought to be examples of policy makers using tax as a way to influence the behaviors and choices of individuals, much how taxes on corporate entities are thought to influence their behaviors. Though critics of these taxes have suggested that they are revenue generation pure and simple.
State and local taxesThere is currently no nationwide consensus on how the tax burden should be distributed, and the right of states to set and collect their own taxes means that variations can be found from state to state. Pennsylvania, for example, has a top marginal corporate income tax rate of 9.99 percent, while South Dakota and Wyoming have no corporate income tax. The state with the highest tax burden on the top one percent of income earners in 2018 was California. At the other end of the scale, Washington placed the highest tax burden on the lowest 20 percent.
The largest majority of local government revenue comes via property taxes. While this system allows for local control and variation across school districts, policymakers have raised concerns that this mechanism for education funding has, and will continue to contribute to rising inequality, and unequal access to educational opportunities.