17 Aug

This article aims to answer the question, "What are the effects of taxing on the lower-class citizens of the US?" by analyzing the income tax, sales tax and state and local taxes. This article is a critical look at taxation policies and the impact they have on low-income families. Despite the many benefits of a free market economy, it is vital to remember that taxes are not equal in all countries. Regardless of the income, state and local taxes can dramatically impact the bottom line of the US economy.


The income tax in the US is progressive. The top 10 per cent of households pay the highest tax burden, whereas the bottom 90 per cent pay the lowest percentage of the tax burden. But in the US, there are a variety of refundable tax credits that help lower-income households. The Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) have been praised as examples of this progressive tax system.


However, different people have differing ideas of what constitutes a "fair" tax system. The public is divided in its preferences about higher taxes for the wealthy, lower taxes for the poor, and no taxes for the rich. Even inequity-aversion affects people's tax preferences: higher taxes for the rich are preferred by the poor. This difference in tax preferences may be due to differences in the perception of inequality and concerns about downward mobility.


A recent study shows that most state and local tax systems are unfair to low and middle-income earners. While most states rely on sales and excise taxes, most do not levy a personal income tax or have a progressive rate. For these reasons, most states' tax systems are regressive and are responsible for increasing income inequality. For example, the national effective state and local tax rate is 11.4 per cent for the lowest income 20 per cent, while the highest-income 1 per cent pay just 0.9 per cent.


The most progressive state and local tax systems in the United States are those with graduated income tax structures. These tax systems generate more than one-third of the state's revenue, a far higher proportion than the national average of 27 per cent. However, the levels of progressivity and graduation vary widely from state to state. For example, California has a highly progressive income tax, and Vermont has a nominally progressive one. However, these two states have very different tax structures, resulting in wildly different distributional impacts.


Income tax rates differ from state to state, but some standard features exist. For example, California has one of the country's most progressive income tax systems, with the poor paying 10.5 per cent of the state income tax while the top one per cent pay only 8.7 per cent. In other states, like Minnesota and Oregon, income tax rates differ considerably from state to state. Local governments levy taxes based on wages and the same broad measure of personal income as the state. The analysis will consider the impact of income taxes on the lower class in these states.


Income tax rates vary by state, but corporations must pay state and local taxes in most states. These taxes are more progressive than federal tax rates, and a large portion is passed on to consumers through higher prices. This means that while rich people pay more in federal taxes, the poor pay less. But the overall impact of income tax rates on lower-class citizens is relatively small. For example, the highest-earning one per cent of Americans paid 33.4 per cent of their expanded cash income in federal taxes. By comparison, the middle class paid 13.7 per cent of their income to state and local taxes.


A regressive policy, sales tax takes a more significant portion of the income from lower and middle-income families. While there is some overlap between the two, the general sales tax is more burdensome on low-income families. In addition, low-income families spend most of their income on groceries, so a flat tax rate on food negatively impacts them. Six states also include nutrition in their tax base, though Tennessee and Hawaii have reduced rates.


The overall impact of the state tax system on lower-income families depends heavily on income tax. Some states have eliminated income tax on people who earn below a certain income level, while others rely heavily on sales tax. Although these states rely on the sales tax to fund their budgets, their tax burden is very high for these citizens. In addition, some states rely on other forms of taxation, such as property taxes.

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