U.S. Tax System: Pros and Cons

The tax system in the US

The United States tax system has two set up, one at the federal level and one at the state level. Both the federal and state taxes are distinct and have individual authorities to decide on the tax regulations. And within the states, each state has its tax system and regulations separate from that of the other state. The tax system in the US is very complex and has layers of several rules and jurisdictions. There are various types of taxes: income tax, sales tax, capital gain, social insurance tax, corporate tax, and property tax. All the rules and regulations related to the tax system in the US, given in the Internal Revenue Code (IRC).

In the US, federal income tax is a progressive tax. A progressive income tax means you pay higher tax as you move up a level of income set. There are different tax rates applicable to income tax slabs.

What is Progressive Tax?

A progressive tax is a tax system where tax liability increases with the increase in your income. Currently, the United States places a progressive income tax that requires higher-income citizens to pay a higher percentage of their income as taxes. Taxpayers pay taxes according to categories based on their income.

For instance, in 2021, individuals earning up to $19,900 are subjected to 10% tax. While an individual earning between $19,901 to $ 81,050 is liable to pay $1990 plus 12 % on the amount exceeding $81,050 as tax. After these two levels, there are five additional income brackets.

Pros and Cons of the U.S. tax system

Pros of the US tax system:

Cons of the US tax system:

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