The federal income tax in the United States is a progressive tax system where the top 1% of households pay a higher average federal tax rate than lower-income groups. The effective income tax rate for the rich is lower than the nominal tax rate because it comprises total taxes paid over total income from all sources. Federal taxes as a percentage of GDP have stayed relatively stable between 17% to 20%, with notable exceptions during economic downturns.
Step-by-step explanation:
Federal Income Tax in the United States
The federal income tax in the United States is a progressive tax system in which higher-income earners typically pay a higher percentage of their income compared to those with lower incomes. The purpose of this system is to fund various government programs. Data from 2009 household income tax returns show that the top 1% of households, with an average income of $1,219,700, paid an average federal tax rate of 28.9%, which translates to an effective income tax rate of 20.4%. This effective rate is the total taxes paid as a fraction of the total income from all sources, such as wages, profits, interest, rental income, and government transfers.
It is interesting to note that the bottom two quintiles may experience negative effective income tax rates due to credits such as the earned income tax credit. This contrasts with the overall trend reported by the Congressional Budget Office, demonstrating that typically, higher incomes result in a higher share of income going towards federal income taxes. Moreover, federal taxes as a share of GDP have stayed relatively constant, usually between 17% and 20%, with the exception of 2009-2011 during the Great Recession.
Therefore, while individual cases may vary, the general pattern aligns with the progressive nature of the tax system, and notions of considerable increases in federal taxes over the years are not supported by the trends in GDP percentages.