Is the tax structure of the United States progressive at the Federal level, the state and local level, and combined? How do transfer payments affect the distribution of income?

Question

What will be an ideal response?

Answer 1

The overall progressiveness, proportionality, or regression of the tax structure in the United States is difficult to evaluate because of imprecise measures and assumptions about the incidence of taxes. The Federal tax system is generally progressive. Tax data from recent years show that the average income tax rate for the top 20 percent of all taxpayers was 23.2 percent compared with only 1.0 percent for the 20% of families with the lowest incomes. The top 5% of all taxpayers paid 59.1 percent of the total Federal income tax collected. This progressiveness is offset somewhat by the Social Security tax which is regressive. The state and local tax systems are largely regressive because property and sales taxes fall as incomes rise and state income taxes tend to be less progressive than the federal income taxes. The overall or combined tax structure is slightly progressive and only modestly redistributes income. But, there are transfer payments that do redistribute income. In the case of the poorest fifth, it quadruples household income. Together the tax and transfer system redistribute income much more than the tax system alone.