A graduated income tax defines an income tax system with multiple tax brackets, each bracket is applied to a range of taxable income. The tax rate increases incrementally as the taxable income moves into a higher bracket. This means that individuals with higher incomes will pay a higher effective tax rate on their taxable income compared to individuals with lower incomes. It’s a type of progressive tax, which is designed to ensure that the burden of taxation is distributed more equitably across different income levels, with high-income earners paying a more significant proportion.
What is a Graduated Income Tax?
A graduated income tax is a tax system in which the tax rate increases as the taxable income increases. This means that people with higher incomes pay a higher percentage of their income in taxes than people with lower incomes.
There are several different ways to structure a graduated income tax system:
- Progressive tax: In a progressive tax system, the tax rate increases at a constant rate as the taxable income increases. This means that the gap between the tax rates for different income levels gets wider as the income levels get higher.
- Proportional tax: In a proportional tax system, the tax rate is the same for all income levels. This means that everyone pays the same percentage of their income in taxes.
- Regressive tax: In a regressive tax system, the tax rate decreases as the taxable income increases. This means that people with higher incomes pay a smaller percentage of their income in taxes than people with lower incomes.
The United States has a progressive income tax system. The tax rates for different income levels are as follows:
| Taxable Income | Tax Rate |
|---|---|
| $0 – $9,950 | 10% |
| $9,951 – $40,525 | 12% |
| $40,526 – $86,375 | 22% |
| $86,376 – $164,925 | 24% |
| $164,926 – $209,425 | 32% |
| $209,426 – $523,600 | 35% |
| $523,601 and above | 37% |
As you can see, the tax rate increases as the taxable income increases. This means that people with higher incomes pay a higher percentage of their income in taxes than people with lower incomes.
Question 1:
What is the concept of a graduated income tax system?
Answer:
Subject: A graduated income tax system
Predicate: Is a tax system where the tax rate on income increases
Object: As the income itself increases.
Question 2:
How does a graduated income tax system affect different income levels?
Answer:
Subject: A graduated income tax system
Attribute: Affects different income levels
Value: By taxing higher incomes at a higher rate and lower incomes at a lower rate.
Question 3:
What are the principles underlying a graduated income tax system?
Answer:
Subject: The principles of a graduated income tax system
Attribute: Include
Value: Equity (fairness), progressivity (increasing tax burden with income), and ability to pay (taxing those who can afford it more).
Thanks for sticking with me through this crash course on graduated income taxes! I hope you’ve found it helpful. If you have any more questions, feel free to drop me a line. And be sure to swing by again soon for more tax-related fun and games.