Is It True the More You Make the More They Take?

The common perception that higher earners face a disproportionately larger tax burden reflects a fundamental aspect of the United States tax system. Many individuals wonder if increasing income truly leads to a significantly higher percentage of earnings being allocated to taxes. This inquiry delves into the structure of how income is assessed for tax purposes.

The Progressive Tax System

The United States employs a progressive tax system, meaning that as an individual’s taxable income increases, the rate at which that income is taxed also rises. This structure divides income into various brackets, with each subsequent portion subject to a higher tax rate. This design ensures those with greater financial capacity contribute a larger percentage of their earnings to public revenue.

For the 2025 tax year, the federal income tax system features seven distinct tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These rates apply to different segments of taxable income, not to an individual’s entire income. For example, a single filer’s first $11,925 of taxable income is taxed at 10%, with subsequent income segments taxed at higher rates, up to 37% for taxable income exceeding $626,350.

This bracket system illustrates that not every dollar earned by a high-income individual is taxed at their highest applicable rate. Instead, only the portion of their income that falls into the highest bracket is taxed at that rate. The income within lower brackets is still taxed at the corresponding lower rates. This tiered approach is a defining characteristic of a progressive tax structure.

The progressive nature of the tax system aims to distribute the tax burden based on an individual’s ability to pay. It means that a person earning substantially more money will not only pay more in total taxes but also a greater proportion of their income in taxes compared to someone earning less. This fundamental design sets the stage for understanding how different income levels are treated under federal tax law.

Understanding Marginal Tax Rates

Building upon the concept of a progressive tax system, marginal tax rates represent the rate applied to the last dollar of income earned within a specific tax bracket. It is important to distinguish this from the idea that an individual’s entire income is taxed at a single, higher rate. Instead, different segments of income are subject to varying marginal rates.

For instance, a single individual with $70,000 in taxable income for 2025 will encounter several marginal rates. The initial portion of their income, up to $11,925, is taxed at a 10% marginal rate, resulting in $1,192.50 in tax for that segment. The next portion, from $11,926 to $48,475, is taxed at a 12% marginal rate, adding $4,386 to their tax liability. Finally, the income from $48,476 up to $70,000 is taxed at a 22% marginal rate, contributing $4,735.50 to their tax.

This example clarifies that even though this individual’s highest marginal tax rate is 22%, not all $70,000 of their income is taxed at this rate. Each dollar falls into a specific bracket and is taxed accordingly. The marginal rate is effectively the tax rate on the very next dollar of income earned.

The application of marginal rates means that an increase in income does not automatically subject all prior earnings to a new, higher tax rate. Instead, only the additional income that pushes an individual into a new bracket is taxed at that higher marginal rate. This structure prevents a sudden, disproportionate increase in tax liability when income crosses a bracket threshold. Understanding marginal rates is fundamental to comprehending how tax calculations are performed and why the tax burden scales with income.

Effective Tax Rate Versus Marginal Tax Rate

To truly understand how much of one’s income is “taken” by taxes, it is crucial to differentiate between the marginal tax rate and the effective tax rate. While the marginal tax rate applies to the last dollar earned, the effective tax rate represents the total tax paid divided by the total taxable income. This distinction is central to realizing that an individual’s overall tax burden is typically lower than their highest marginal rate.

The effective tax rate provides a more comprehensive view of an individual’s actual tax liability. For example, consider a single filer with a taxable income of $70,000 in 2025. The total federal income tax owed would be $1,192.50 + $4,386 + $4,735.50 = $10,314.

To calculate the effective tax rate, this total tax of $10,314 is divided by the total taxable income of $70,000, resulting in an effective tax rate of approximately 14.73%. This percentage is significantly lower than the highest marginal rate of 22% that applied to a portion of their income. This calculation demonstrates that while marginal rates increase with income, the effective tax rate, which accounts for all income segments, will also generally increase with income but remain below the top marginal rate.

This distinction directly addresses the perception that higher earners pay a disproportionately larger share. While they do face higher marginal rates on their top income segments, their overall effective tax rate, when considering all income, is a blended average. This effective rate still typically rises with increasing income, confirming that those who earn more do contribute a larger percentage of their earnings in taxes. The effective rate offers a clearer picture of the actual tax burden, as it reflects the average rate paid across all taxable income.

Additional Taxes and Tax Reductions

Beyond federal income tax, individuals face other significant taxes that contribute to their total tax burden. Payroll taxes, specifically for Social Security and Medicare, are levied on earned income. For 2025, employees and employers each contribute 6.2% for Social Security, up to a wage base limit of $176,100. Both employees and employers each pay 1.45% for Medicare tax on all covered wages, with an additional 0.9% Medicare tax applying to wages exceeding $200,000 for individuals, without an employer match. These payroll taxes are distinct from income tax and are withheld directly from wages.

While various taxes contribute to the overall amount “taken,” several provisions exist to reduce taxable income or direct tax liability. Tax deductions reduce the amount of income subject to taxation. For example, for 2025, the standard deduction for single filers is $15,000, and for married couples filing jointly, it is $30,000. Taxpayers can choose to take the standard deduction or itemize deductions, such as mortgage interest or charitable contributions, if their itemized deductions exceed the standard amount.

Tax credits, unlike deductions, directly reduce the amount of tax owed, dollar-for-dollar. For instance, if an individual owes $1,000 in taxes and qualifies for a $500 tax credit, their tax bill is reduced to $500. Some credits are refundable, meaning they can result in a refund even if they reduce the tax liability below zero, while nonrefundable credits can only reduce the tax owed to zero.

Capital gains, profits from the sale of assets like stocks or real estate, are taxed differently depending on how long the asset was held. Short-term capital gains, from assets held for one year or less, are taxed at ordinary income tax rates. Long-term capital gains, from assets held for over a year, are generally taxed at lower rates: 0%, 15%, or 20%, depending on the taxpayer’s income. These varying rates and reduction mechanisms mean that the ultimate percentage of income paid in taxes can be influenced by many factors beyond just an individual’s gross income.