US has most progressive tax system in developed world

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MemphisAg1
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8:40a, 1/8/26
AG
You won't hear that from the Democrats or their lapdog mainstream media because it doesn't support their agenda of buying votes with promises to reward voters with other people's money.

But it's true, as noted by this study from the Cato Institute. Also not surprisingly, California is one of the worst states (most progressive) while Texas is one of the best (most neutral).

Quote:
The United States places an unusually heavy share of the tax burden on higher earners. You wouldn't know this from hearing some politicians claim that the rich escape next to tax-free or deserve to be taxed at higher rates.

In reality, the data show the opposite. The most recent example is a study by the Fraser Institute, which shows the US ranks first out of 33 developed countries as having the most progressive tax system.

Progressive tax systems, where tax rates and tax shares increase with income, are often idealized by big-government redistributionists, but they come with trade-offs. As tax systems become more progressive, they make each additional hour of work or investment less rewarding, weakening incentives to work longer hours, take entrepreneurial risks, start new ventures, or invest in continuing education.

Over time, these effects compound, slowing economic progress and material well-being for everyone. Highly progressive tax systems are also more volatile revenue sources, unfairly treat similar citizens in vastly different ways, encourage avoidance and evasion, and increase administrative complexity.

https://www.cato.org/blog/united-states-has-most-progressive-tax-system-developed-world
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YouBet
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8:42a, 1/8/26
AG
And it's only getting worse even under Trump with his idiotic no tax on tips or overtime.
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CDUB98
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9:23a, 1/8/26
AG
BuT ThE rIcH aReN't PaYiNg ThEiR fAiR sHaRe!!
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Captain Pablo
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In reply to YouBet • 9:25a, 1/8/26
AG
YouBet said:
And it's only getting worse even under Trump with his idiotic no tax on tips or overtime.


Agreed
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SociallyConditionedAg
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In reply to YouBet • 9:29a, 1/8/26
AG
YouBet said:
And it's only getting worse even under Trump with his idiotic no tax on tips or overtime.

But it made a good sound bite. Honestly, it's an odd swath of people that it really helps and if you make too much money it doesn't do much for you. Just a simple increase in the standard deduction or larger expansion in tax rates would have been easier and more effective. Also, doesn't it only apply to the 0.5 multiplier in overtime, not the whole 1.5x multiplier? It sounds like a nightmare to implement and document.
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Helicopter Ben
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In reply to MemphisAg1 • 9:36a, 1/8/26
I've learned an incredible life hack where I don't have to pay much in taxes. It's called the don't earn money strategy. I sold my business a couple of years ago and would have loved to start another. But in all honesty, the taxes, bureaucracy, and liability risk just aren't worth it to me. Covid was the last straw. If they can shut down my business with the stroke of a pen and cause me to lose hundreds of thousands of dollars, I'm just gonna throw in the towel and retire early. Taxes, regulation, and everything else the government does desperately needs to be slashed and then simplified. I know we won't get that until economic reality forces it upon us.
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sam callahan
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9:38a, 1/8/26
Quote:
But in all honesty, the taxes, bureaucracy, and liability risk just aren't worth it to me.


This is the most expensive cost of our tax system. It costs us trillions each year.
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BusterAg
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In reply to YouBet • 10:08a, 1/8/26
AG
YouBet said:
And it's only getting worse even under Trump with his idiotic no tax on tips or overtime.

Can you help me with this logic?

How does a tax break on manual labor overtime and waitresses make the US tax system MORE progressive?
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halfastros81
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In reply to Helicopter Ben • 10:19a, 1/8/26
AG
This is where I'm at but once the RMD's kick in in 6 yrs I'm going to get slayed by the tax man again. Medicare is also fleecing me to the tune of over $ 700 per month.

The disincentive to be productive is ridiculous.
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YouBet
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In reply to BusterAg • 10:21a, 1/8/26
AG
BusterAg said:
YouBet said:
And it's only getting worse even under Trump with his idiotic no tax on tips or overtime.

Can you help me with this logic?

How does a tax break on manual labor overtime and waitresses make the US tax system MORE progressive?


These people are generally at the bottom of the top half of actual tax payers which means some of them likely tip into the bottom half of non-tax payers with this policy. I have no idea what that number is but it's just more incrementalism towards reducing the number of net tax payers in this country thereby shifting more of the burden to fewer people.

And then the Democrats, after the fact, came out and said they support and actually want to expand this policy so that even more people get off the tax rolls - we know why that is.
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Lone Stranger
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10:22a, 1/8/26
A real eye opener while talking to my CPA this week about my 2025 taxes and I'm still trying to process that fact that I have officailly become one of that large percent that will pay no federal income tax last year. I retired a year and a half ago and am foregoing social security until i hit my full age. I had no wage type income BUT have and lived off good amount of interest, dividends and capital gains on investments. I also sold a small rental condo this past year with capital gains and the total income on paper puts me close to the realm of what my income was before I retired. Bottom line when you put all of it together with all the various legal deductions.....I paid and owe no federal income tax for last year. Checked with a different CPA; same answer. I knew it was important to keep up with the crazy tax rules long term....but man there is a part of me that can't believe and kind of feels bad I've entered the 0 federal tax segment often mentioned on this board. I know this won't be long term particularly when RMD kicks in eventually on all the 401k, SEP-IRA and IRA's. Another part of me kind of thinks I've won against the system.
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Cibalo
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10:26a, 1/8/26
This isnt totally surprising if you look at where most of the tax revenue comes from and also look at what percentage of the population pay no or very little tax.

Also your average voter doesn't understand the difference between income rich vs net worth rich.
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YouBet
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In reply to Lone Stranger • 10:33a, 1/8/26
AG
Lone Stranger said:
A real eye opener while talking to my CPA this week about my 2025 taxes and I'm still trying to process that fact that I have officailly become one of that large percent that will pay no federal income tax last year. I retired a year and a half ago and am foregoing social security until i hit my full age. I had no wage type income BUT have and lived off good amount of interest, dividends and capital gains on investments. I also sold a small rental condo this past year with capital gains and the total income on paper puts me close to the realm of what my income was before I retired. Bottom line when you put all of it together with all the various legal deductions.....I paid and owe no federal income tax for last year. Checked with a different CPA; same answer. I knew it was important to keep up with the crazy tax rules long term....but man there is a part of me that can't believe and kind of feels bad I've entered the 0 federal tax segment often mentioned on this board. I know this won't be long term particularly when RMD kicks in eventually on all the 401k, SEP-IRA and IRA's. Another part of me kind of thinks I've won against the system.


I respect your nobleness, but I'm not going to feel bad. At all. We were raped for years.

We are still estimating that we owe $3k out of pocket for 2025, but 2026 may be next to nothing since early retired at end of 3Q in 2025 and my wife's actual income is still below poverty level (brand new business). Granted, I hope she kicks ass and grows out of that.
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aggie93
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In reply to BusterAg • 10:48a, 1/8/26
AG
BusterAg said:
YouBet said:
And it's only getting worse even under Trump with his idiotic no tax on tips or overtime.

Can you help me with this logic?

How does a tax break on manual labor overtime and waitresses make the US tax system MORE progressive?

It lowers taxes further on people who barely pay any taxes now. Their perception is they are paying a lot but it's a pittance compared to someone who makes $300k proportionately. It's populism so that's on brand for Trump and I get it, most people have no clue about economics and they have little understanding of how insane our tax code is. If you are a family of 4 making $75-100k you pay virtually nothing in income taxes, it's possible you actually get more money back depending on how you have your deductions and pay structured. This will make that even more extreme.

The problem is it detaches taxation from a majority of the populace as being nothing or next to nothing to them. Thus they have no skin in the game. Add in some media and pols saying "The rich don't pay their fair share" and it only gets worse. The assumption becomes that the guy who makes $300k also pays almost nothing when in reality they are paying a massive tax bill that is often more than their mortgage and car combined. We don't educate people though so the ignorance only builds and populists will take the easy path of making more people who pay almost no taxes and increasing taxes on the people who do because there aren't enough of them to vote against you. Then you layer on stuff like how the truly rich are able to avoid taxes through things like borrowing against equity and a ton of other methods yet the politicians talk about those people as though raising income taxes is about sticking it to them when they pay almost nothing. The current system absolutely hammers the upper middle class, especially W-2 employees, at a ridiculously disproportionate level.

The solution is to get rid of income taxes and have a consumption tax and tariffs with exceptions for staple goods and housing. You can send citizens a rebate every year as well so it can make it so that essentially anyone at the low end pays effectively nothing. This makes administration far simpler and makes it so that everyone has skin in the game for the most part. The current system is incredibly inefficient. A consumption tax with no income tax would result in far more revenue and solve so many issues.

Of course the truth is that none of this has to do with fairness or revenue collection, it's about power. There is no single thing that gives the government more power over you than the tax code and the ability to manipulate it with incentives and disincentives to force you to act as they want and to control you.
"The most terrifying words in the English language are: I'm from the government and I'm here to help."

Ronald Reagan
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CanyonAg77
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In reply to Lone Stranger • 11:05a, 1/8/26
AG
Quote:
Another part of me kind of thinks I've won against the system.

The system is a freaking mess, so no surprise you can win.

Personally, nothing you earn should be taxable. Pay taxes when you spend.
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Sid Farkas
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In reply to YouBet • 11:10a, 1/8/26
AG
YouBet said:
And it's only getting worse even under Trump with his idiotic no tax on tips or overtime.

Don't care. It's just one front on the fight to reduce tax revenue across the board.

Starve the beast.
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YouBet
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In reply to Sid Farkas • 12:18p, 1/8/26
AG
Sid Farkas said:
YouBet said:
And it's only getting worse even under Trump with his idiotic no tax on tips or overtime.

Don't care. It's just one front on the fight to reduce tax revenue across the board.

Starve the beast.

As a large net taxpayer I care because I'm one of the ones taking it up the ass until it starves.

Although, I will no longer care beginning with tax year 2026 now that I'm not working, but I cared very hard when we were DINKs. If I go back to work again in near future (never say never), then I will care very hard again.

But, this just tells you how whacked the incentives are around our entire tax system.
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Pinochet
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In reply to Sid Farkas • 12:24p, 1/8/26
Sid Farkas said:
YouBet said:
And it's only getting worse even under Trump with his idiotic no tax on tips or overtime.

Don't care. It's just one front on the fight to reduce tax revenue across the board.

Starve the beast.

This is devoid of logic. The changes made last year don't starve anything. The taxes were shifted to higher income taxpayers and away from people who were already paying very little in tax.

The "conservatives" who changed their view on taxes to this bull**** are just doing so because they like the guy who told them the story.
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HollywoodBQ
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In reply to Helicopter Ben • 12:42p, 1/8/26
AG
Helicopter Ben said:
I've learned an incredible life hack where I don't have to pay much in taxes. It's called the don't earn money strategy.

I used to work with a Sales guy who embraced this strategy after he got divorced.

In his case, he wasn't trying to avoid taxes, he was trying to avoid paying alimony.

Luckily for him, his ex-wife remarried a CEO of a tech company and he resumed his regular life as a networking Mormon scam artist.

I made a few sales calls in Salt Lake with him since he somehow managed to get Utah included as part of our SoCal sales territory. Fun times.
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HollywoodBQ
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In reply to aggie93 • 12:48p, 1/8/26
AG
I haven't seen a good screed from you in a while and I genuinely do enjoy reading them.

What they taught me in the first week of my MBA program at Colorado is that income tax has very little to do with revenue collection. It's all about behavior modification.
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eric76
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12:53p, 1/8/26
AG
I was driving down the road on my way to go fishing at a lake in Oklahoma while listening to Rush Limbaugh on the radio.

He had a caller from the IRS who asserted that the US tax system is the envy of the world.

I almost drove into the ditch.
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HollywoodBQ
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12:55p, 1/8/26
AG
I think the Australian Income Tax rates are more oppressive than the USA.
I realize the topic was "progressive"

Here are the current Aussie rates where $190k puts you in the top bracket, paying 45%
Quote:
0 $18,200 --> Nil
$18,201 $45,000 --> 16c for each $1 over $18,200
$45,001 $135,000 --> $4,288 plus 30c for each $1 over $45,000
$135,001 $190,000 --> $31,288 plus 37c for each $1 over $135,000
$190,001 and over --> $51,638 plus 45c for each $1 over $190,000

The above rates do not include the Medicare levy of 2%.

https://www.ato.gov.au/tax-rates-and-codes/tax-rates-australian-residents

Note that this doesn't include a 10% GST on essentially everything you buy.
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eric76
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12:59p, 1/8/26
AG
If I remember correctly, on the Isle of Man, there is a maximum tax each year. Once you reach that maximum, there is no more taxes on however much more you earn that year.

I think that the maximum is the taxes on 200,000 manx pounds or so.

Of course, they could have changed their laws since I read about that, too.
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eric76
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1:03p, 1/8/26
AG
From https://www.gov.im/categories/tax-vat-and-your-money/income-tax-and-national-insurance/individuals/residents/rates-and-allowances/

Quote:
Annual Income Tax Cap Election Amount 2025/26
Single Person 220,000
Joint Assessed 440,000


For more information, see https://www.gov.im/media/1384454/gn51-income-tax-cap-uploaded-270624.pdf
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Stinky T
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In reply to HollywoodBQ • 1:14p, 1/8/26
AG
Australia is bad, although I don't think we are far behind. I pay way more than 2% of my annual income for healthcare, so I would expect some of the funding for Australia's healthcare system comes from the income and/or GST tax as well.
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aggie93
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In reply to HollywoodBQ • 4:20p, 1/8/26
AG
HollywoodBQ said:
I haven't seen a good screed from you in a while and I genuinely do enjoy reading them.

What they taught me in the first week of my MBA program at Colorado is that income tax has very little to do with revenue collection. It's all about behavior modification.

Yep, it's amazing how they have so many people that don't take a moment to question the system itself and why we do things the way we do beyond a very superficial level. The tax code is about control yet for some insane reason conservatives don't press on that. Instead they focus on a deeper economic argument that loses most people because they just hear "rich people might pay less so that's bad". Of course that is all Marxist theory based in the most dangerous of the deadly sins, envy.

"The most terrifying words in the English language are: I'm from the government and I'm here to help."

Ronald Reagan
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Davanji84
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In reply to halfastros81 • 4:53p, 1/8/26
AG
halfastros81 said:
This is where I'm at but once the RMD's kick in in 6 yrs I'm going to get slayed by the tax man again. Medicare is also fleecing me to the tune of over $ 700 per month.

The disincentive to be productive is ridiculous.

Medicare comment. Same here. This is a system that I paid into for over 40 years and my premium is higher than the rest of our family on private insurance plans. Unreal. As a Medicare newbie, that cost came as quite the shock and source of irritation.

Last thought. Have a friend who lives in Tennessee. He recently went on Medicare and got hit with the same IRMA adder. His insurance broker told him to appeal it as, since he is now retired, his income is nowhere near the same as his final two years of working. His broker said 99 percent of those appeals are successful as long as you can prove the drop in income.

I'm in the same boat so I'm going to do the same. My broker says that I shouldn't get my hopes up because the appeal success in Texas hasn't been anywhere near 99 percent. You miss 100 percent of the shots you don't take so I'm still going to move forward with the appeal.
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Ag1188
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5:06p, 1/8/26
AG
Then why do so many wealthy pay $0 in income taxes? Oh yeah, that's not how they get their income. So that's not very "progressive".
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Pooh-ah95_ESL
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In reply to Ag1188 • 5:17p, 1/8/26
AG
Ag1188 said:
Then why do so many wealthy pay $0 in income taxes? Oh yeah, that's not how they get their income. So that's not very "progressive".


It's not a wealth tax, it is an income tax. Maybe that was the point you were trying to make. If I am growing a business I am growing my wealth but quite possibly I haven't taken any income out of that business. As soon as I pay myself that is where the income tax will come.
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YouBet
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In reply to Ag1188 • 6:18p, 1/8/26
AG
Ag1188 said:
Then why do so many wealthy pay $0 in income taxes? Oh yeah, that's not how they get their income. So that's not very "progressive".


You are likely paying nothing in income tax so why do you care?
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HollywoodBQ
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In reply to Stinky T • 11:08p, 1/8/26
AG
Stinky T said:
Australia is bad, although I don't think we are far behind. I pay way more than 2% of my annual income for healthcare, so I would expect some of the funding for Australia's healthcare system comes from the income and/or GST tax as well.

I posted it previously on TexAgs but can't find it now. I guess I'll have to pay for stars someday.

Anyway, the 2% is on top of the $20,000 - $40,000 that I already paid in income tax for healthcare.

In the Australian socialized medicine system, the "wealthy" subsidize the healthcare for everybody else. And you get fined if you don't have private health cover.
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SMM48
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In reply to halfastros81 • 11:42p, 1/8/26
AG
Not sure if you give to charity…….rmd withdrawal. Current rules.

if you instruct your account to send check directly to church/charity/association/ etc……it is tax free to you.

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halfastros81
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In reply to Davanji84 • 12:31a, 1/9/26
AG
I got the same advice and I plan to appeal .
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halfastros81
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In reply to SMM48 • 12:33a, 1/9/26
AG
I'll look into that . I have 6+ years to figure it out or at least I hope I do
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Pinochet
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In reply to Ag1188 • 12:34a, 1/9/26
Ag1188 said:
Then why do so many wealthy pay $0 in income taxes? Oh yeah, that's not how they get their income. So that's not very "progressive".

Ok ******, tell us how they get income then.
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