politicalissues

All issues · Economy & Fiscal Policy · No. 02

Taxation

Who should bear the cost of government, and what does a fair share look like?

Tax policy decides both how much revenue the government collects and how the burden is distributed. Debate runs along two axes at once: the total level of taxation, and its distribution across income, wealth, and activity.

The federal system relies primarily on individual income taxes and payroll taxes, with corporate income, excise, estate, and tariff revenue making up smaller shares. State and local governments lean more heavily on sales and property taxes.

The federal income tax is progressive in structure, meaning higher brackets face higher marginal rates. Payroll taxes are flatter and capped, and sales taxes take a larger share of income from lower earners. Assessments of overall fairness depend heavily on which taxes are counted together.

Much of the code's complexity comes from deductions, credits, and exclusions, sometimes called tax expenditures. These function as spending delivered through the tax system and are worth a very large sum annually.

POSITION 1 / 3

Lower rates, broader base

Taxes should raise necessary revenue with the least possible drag on work, saving, and investment.

  • High marginal rates discourage additional work, risk-taking, and capital formation.
  • Capital is mobile; uncompetitive corporate rates push investment and profits offshore.
  • Eliminating carve-outs is a fairer path to revenue than raising rates.
  • A simpler code reduces compliance costs and the advantage held by those who can afford advisors.

POSITION 2 / 3

More progressive taxation

Those who have gained the most from the economy should contribute proportionally more to sustaining it.

  • Income and wealth concentration has risen substantially over recent decades.
  • Investment income is often taxed more lightly than wages from labor.
  • Estate and capital provisions allow large fortunes to pass across generations with limited taxation.
  • Public goods that support broad prosperity require revenue that only higher earners can supply at scale.

POSITION 3 / 3

Shift what is taxed

The question is less about rates than about which activities the code rewards or penalizes.

  • Taxing consumption rather than income could encourage saving and investment.
  • Land and property taxes are difficult to avoid and do not discourage productive work.
  • Taxing pollution or carbon prices an external cost rather than a productive act.
  • Payroll taxes raise the cost of employment specifically, which may not be the intended target.
Terms you will hearFind your officials →
Marginal rate
The rate applied to the next dollar earned, not to all income.
Effective rate
Total tax paid as a share of total income, usually lower than the top marginal rate.
Tax expenditure
Revenue forgone through a deduction, credit, or exclusion; functionally similar to spending.
Capital gains
Profit from selling an asset, generally taxed at rates separate from wage income.
What people actually disagree aboutFind your officials →
  1. Should income from labor and income from investment be taxed at the same rate?
  2. Is fairness better measured by the share of taxes paid or the share of income remaining?
  3. How much complexity is worth accepting in exchange for targeted policy goals?
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