U.S. Effective Tax Rates Remain Highly Progressive, Despite Some Economists’ Claims

There is an ongoing debate among economists regarding the level of progressivity in the US effective tax rates. While some analyses show that the tax system remains progressive, with higher-income groups paying a larger share of federal income taxes, other economists argue that the overall tax burden is less progressive than the public perceives.

Also Read

What Happens During an IRS Audit? Process and Timeline Explained

Economists who argue that the US tax system is less progressive than it appears cite broader data and historical trends. Although some economists discuss tax avoidance strategies or lower effective rates for the ultra-wealthy on some income types, the structure itself remains strongly progressive.

“The tax year 2025 marginal rates remain 37% for incomes over $626,350 for single filers and $751,600 for married couples filing jointly, with other brackets at 35%, 32%, 24%, 22%, 12%, and 10%”- IRS

Also Read

How to Avoid an IRS Audit: Tips to Keep Your Tax Return Low-Risk

US Effective Tax Rates Remain Highly Progressive, Despite Some Economists’ Claims

The US federal income tax system for 2025 remains highly progressive, characterized by seven marginal tax rates ranging from 10% to 37%, with higher income earners paying significantly higher rates on their taxable income.

Also Read

IRS $1,400 Payments 2025 — Everything You Need to Know

Despite some economists’ claims that effective tax rates are lower for the ultra-rich due to various deductions and income sources, data and tax brackets confirm the highly progressive nature of the system where tax rates increase with income levels.

“The 7 federal income tax brackets for 2025 remain progressive, with the lowest bracket taxing income up to $11,925 at 10%, and the top bracket taxing income over $626,350 at 37%” – BPC

Also Read

Form W-4 Guide: How to Fill Out Your W-4 for the Right Tax Withholding

The top marginal tax rate is 37% for individual single filers with taxable income above $626,350 ($751,600 for married filing jointly).​ The income brackets range progressively starting from 10% for the lowest incomes up to 37% at the highest income levels, ensuring higher earners pay more tax proportionally. Effective tax rates for top wage earners can reach around 45%, especially for income from wages and salaries, though capital gains and other income types might have different effective rates.

Also Read

Premium Tax Credit (ACA): How Health Insurance Affects Your Taxes?

The progressive nature of the US tax code

The US tax code is designed to be progressive, meaning tax rates increase as a taxpayer’s income rises, ensuring that higher-income individuals pay a larger share of their income in taxes compared to lower-income individuals. This progressivity is enacted primarily through the federal income tax brackets, where income is taxed at increasing marginal rates. Key features of US tax code progressivity include:

Feature	Details
Tax Brackets	Seven federal income tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, 37%
Top Marginal Rate	37% on taxable income above $626,350 (single filer) and $751,600 (married joint filer)
Marginal Taxation	Income taxed at increasing rates as income rises
Effective Tax Rates	Actual tax share paid increases with income, lower than marginal rates due to deductions
Capital Gains & Dividends	Preferential tax rates (0%, 15%, 20%), slightly reducing progressivity on investment income
Alternative Minimum Tax (AMT)	Ensures minimum tax paid, prevents excessive deductions
Payroll Taxes	Capped on income up to a limit; less progressive but offset by income tax progressivity
Tax Credits	Refundable and non-refundable credits for low-to-moderate income taxpayers increase progressivity
Impact on Inequality	Progressive tax system reduces income inequality by taxing higher incomes at higher rates

Official Treasury data demonstrate that overall, tax payments increase disproportionately with income, with higher earners paying the lion’s share of federal income taxes. This supports the conclusion that despite isolated claims of reduced rates for the ultra-rich, the effective tax system is strongly progressive.

Federal Tax Rates Have Fallen for Low-Income Households

Federal tax rates for low-income households in 2025 have effectively fallen due to inflation adjustments, expanded tax credits, and increased standard deductions. The IRS raises tax bracket thresholds and the standard deduction annually, which prevents “bracket creep” and lessens the tax burden on low-income earners.

• The IRS adjusted 2025 federal tax brackets and the standard deduction for inflation, helping prevent “bracket creep” and reducing tax liability for low-income earners.
• The standard deduction increased to about $15,750 for single filers and $31,500 for married couples filing jointly in 2025.
• The seven federal income tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%, with the lowest bracket (10%) covering taxable income up to $11,925 for singles in 2025.
• Refundable tax credits such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) significantly reduce or eliminate tax for many low-income households.
• Expansion of tax credits and new deductions in 2025 provide additional relief for seniors, caregivers, and tipped workers.
• Approximately 40% of U.S. households, mostly those earning under $75,000, pay no federal individual income tax in 2025 due to these changes.
• Payroll taxes, state taxes, and sales taxes still contribute to the overall tax burden for low-income households despite federal income tax relief.
• These measures combined ensure progressive relief, meaning the lowest income groups experience the most significant reductions in federal income tax burden.

Ongoing debate on tax avoidance

It is true that some critics argue that although the US tax code has nominally progressive rates, wealthy individuals and corporations often use tax breaks, loopholes, deductions, and other strategies to reduce their effective tax rates. This debate centers on whether the effective tax system is as progressive as the statutory tax brackets suggest.

FAQ’s