Progressive vs. Regressive Taxes ⚖️ 2014

 in Tax Guide  tagged Progressive vs. Regressive Taxes by

A tax system is progressive when the tax burden on higher-income individuals is proportionally greater than on those with lower incomes. Simply put, as income rises, so does the percentage of that income paid in taxes.

Conversely, a tax system is regressive when lower-income individuals bear a greater tax burden than those with higher incomes.

The U.S. federal tax system is progressive, and this is most evident in the individual income tax, which uses a graduated rate system. This system, the primary source of federal revenue, has seven different tax brackets. Higher incomes are subject to higher marginal tax rates, ranging from 10% to 37%.

This structure leads to a stark reality: the top 50% of U.S. taxpayers paid roughly 97% of all federal income taxes in 2022, while the bottom 50% paid just 3%. Some low-income individuals even have a negative effective tax rate, receiving more in tax breaks and credits (like the Earned Income Tax Credit) than they owe in taxes. This demonstrates a highly progressive system that has become even more so since the modern federal income tax was established in 1913.

The One Big Beautiful Bill Act (OBBBA) and Progressivity

The recently passed One Big Beautiful Bill Act (OBBBA) doesn’t fundamentally change the progressive nature of the U.S. tax code. The act maintains the existing graduated income tax system, largely making previous rates and brackets permanent.

While the new law may offer a different level of benefit across income groups, it doesn’t alter the core progressive structure. In fact, some new provisions, like an expanded child tax credit, will particularly benefit lower-income Americans.

According to a Tax Foundation analysis, the OBBBA is projected to increase after-tax incomes for all groups, though the benefits may vary. For example, in 2026, the lowest-earning 20% might see a 2.6% increase in after-tax income on average, while the top 20% could see an average increase of 5.0%. Despite this difference, the overall share of taxes paid by each income group remains largely the same, meaning high earners will continue to pay the vast majority of federal income taxes.

So, while the debate over tax fairness continues, the data confirms that the U.S. tax code remains a progressive one.

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