Our regressive income tax

I've pointed out before (but at the moment I can't find where) that our tax system is actually regressive when FICA taxes are factored in.

The chart displayed at Marginal Revolution shows how people at what I consider the borderline area between middle class and upper middle class pay a higher marginal tax rate than those who are wealthier. (I think that it's FICA taxes influencing the shape of the chart, but there's no explanation.)

It's quite unfair in my opinion.

FOLLOWUP POST

FICA taxes screw the middle class

Comments

[Noumenon]

That chart just doesn't speak for itself. Zero marginal tax rate between $30,000 and $60,000? I have never heard anything like that even with Social Security benefits in the accounting.

[Half Sigma]

Well I have to agree that the chart seems a little suspect. Zero marginal tax rate really doesn't make any sense at any income level.

But still, with the FICA taxes significantly lower after $90,000/year, I'm sure that a typical person in the 28% income tax bracket earning less than $90,000 has the highest marginal tax rate of any other class of taxpayer.

[jd]

marginal tax rate does a very poor job of measuring the actual effect of taxes on individual income- total effective tax rate does this much better... This is because people pay at different rates: for example you make 90,000 in wages I make 90,000 in capital gains- your marginal rate is 25% - 28%, mine would be 15% (discounting payroll tax c.15% for you, 0% for me), however this would not show if you are only looking at a simplified marginal tax rate schedule- effective tax rates include these sorts of effects- to include EIC and various deductions- much more accurate picture of what each group pays in taxes...

jd: WRONG! Decisions on whether to work harder are made only based on the marginal benefit of each additional unit of work, like all decisions about whether to get "one more." I've been feeling the compression effect of getting very little additional benefit out of each additional calorie I put into my job for years now, and I'm right at that peak marginal tax income level. Even if I were above it, my decisions about whether to work *less hard* would be made based on how much income I would lose versus the free time and energy I would gain to do other stuff I enjoy more than work.

[Orval]

The subject of marginal rates motivated me to start a blog tackling a visual approach of taxation, including marginal rates, http://visual-tax.blogspot.com/. Still experimental at this time, but you may want to have a look already. Comments welcome.