Final answer:
Taxes in a progressive tax system increase as income rises. Marginal tax rates in the U.S. range from 10% to 39%, which means higher earners pay a larger fraction of their income. The Lorenz Curve visually represents the impact of taxes on income inequality.
Step-by-step explanation:
The distribution of taxes paid by income level reflects a progressive tax system where the percentage of income paid in taxes increases with higher income levels. In the United States, for example, there are multiple tax brackets, with marginal tax rates ranging from 10% to 39% as of 2010, which means that higher income households face higher marginal tax rates and thus pay a greater fraction of their income to the government.
This system is designed to have a redistributive effect, making the post-tax income distribution more equal than the pre-tax income distribution. For instance, according to a hypothetical example, an individual earning $200,000 would have a marginal tax rate of 33% and would pay significantly more in taxes than someone earning $20,000, who would have a marginal tax rate of 15%. Notably, other countries, such as Sweden, have even higher marginal tax rates at upper income levels.
The Lorenz Curve is one tool used to represent income inequality; it shows the cumulative share of population against the cumulative percentage of total income received. Such graphical representations can illustrate the consequences of particular tax policies on income distribution.