Progressive Taxation

A progressive tax is one in which higher-income earners pay a larger share of their income than lower-income earners. The federal income tax has been progressive since its inception under the Sixteenth Amendment.

The principle of progressive taxation predates the United States. Adam Smith wrote in 1776 that "it is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion." The American income tax has been progressive since its first modern incarnation under the Sixteenth Amendment in 1913. Top marginal rates have ranged from seven percent at the founding of the modern income tax to 94 percent during World War II, then down to 28 percent after the Tax Reform Act of 1986, and back up to 37 percent under current law. The defenders of progressivity argue that those who have benefited most from the public infrastructure, education, and rule of law of the United States have the greatest capacity to support it. A dollar means more to a family at the median income than to a household earning ten times as much. Progressive rates fund public goods without crushing those least able to pay. Critics argue that very high marginal rates discourage work, investment, and entrepreneurship, and that they punish productivity. Many also argue that the practical effect of a progressive code is undermined by deductions and credits that the wealthy use more effectively than the poor. Both sides accept some progressivity in the federal income tax. The argument is over the slope.