Understanding the US tax system

For years, I’ve wondered if part of our national discussion about taxes is made more difficult because people don’t have a full understanding of how the US ‘rate-and-bracket’ tax structure actually works.

My thoughts about how we discuss taxes was crystallized when then presidential candidate Barack Obama and Samual Joseph Wurzelbacher (aka “Joe the Plumber”) talked about taxes during the 2008 presidential election. Obama correctly explained the marginal tax increase under his plan (and Joe seemed to understand), but the national discussion that followed seemed to just miss the mark on how the US tax system works.

Over the last few days, we’ve had a renewed discussion about taxes, in particular who will be most impacted by Joe Biden’s tax plan. So I decided to make a little explainer, which I’ve embedded below as a clickable SlideShare embed and an animated GIF.

This is a simple explainer and is not intended to show how Biden’s plan would impact all Americans. I’m not including a whole bunch of complications in the tax code: I’m not showing the impact of standard versus itemized deductions; I’m not showing impacts of surtaxes owing to the ACA; and I’m only showing the tax schedule for single filers (who make up about half of all returns). And, importantly, I’m only showing income taxes–I’m not looking at payroll taxes or corporate taxes.

The US tax system is incredibly complicated, but I think if we can get a better sense of the core of how the system works, we will all be better off and better able to have honest, objective discussions about how it should work.

If you want to learn more about the US tax system and compare different tax reform plans, I recommend the following sites:

Tax Policy Center

Tax Foundation

Center on Budget and Policy Priorities

Committee for a Responsible Fiscal Budget

Animated GIF showing how the US rate-and-bracket structure works