Federal Tax Brackets

Ahhh politics. Listen to these two words: Progressive. Sounds good, right? Like a bunch of happy face emojis…new puppy…or a bright shiny new electric car moving forward. Pro. Positive. Good.

Now, what about regressive? Like...going backward. Regressing.

So if ever you thought that finance wasn’t political, well…you were wrong. About a century ago, the notion was carried in the country that the rich benefit more from society so they should be taxed more. Not ridiculous logic. And probably both Left and Right can agree that this notion applies in many cases.

But there is a backdrop here of degree, meaning…how much taxing of the rich is…enough? And how much is…too much?

Okay, so progressive rates might start at like…zero tax for the first ten thousand dollars of earnings. Then from ten thousand to 25 thousand, the rate is 10%. From $25,000 to $40,000, the rate might be 20%. Then from $40,000 to $80,000, the rate might be 30%. And from $80,000 to a gajillion, the rate might be 40%.

So that’s progressive, that is, the rate itself goes higher as you earn more money.

So let's say that you earn $90,000 a year. Remember that, on your first $10,000, you paid no tax. But if you earned $90,000 that year, then on that last 10 grand…i.e., the move from $80,000 to $90,000 representing all that overtime you put in on weekends and evenings...that last 10 grand is taxed at 40%. So you keep only 6 grand of the 10 grand you earned.

And you remember that fact darkly when you try to save up for your first home.

Anyway...that’s considered "progressive."

The opposite is regressive, which at its heart doesn’t seem particularly evil or bad at all. It just means that everyone is taxed the same.

So, on a gallon of gas that Bill Gates consumes, which costs him 3 bucks a gallon and carries with it a dollar of tax...Bill pays the same rate as Polly Poormouth, a waitress at Keynes' Diner. Rich and poor pay the same tax on a gallon of gas, and that is considered regressive.

The reason? Because Polly's broke…and Bill, well, isn't...that dollar tax represents a bigger proportion of her income than it does his. Hence the scary "regressive" word.

But we're not making an argument either way…so, uh…don't shoot the messenger. No matter your view on progressive vs. regressive taxation, there's one thing everyone can agree about where taxes are concerned. It's that you better pay 'em when the IRS suits come a-knocking…or else.