Since enactment of the last major reform, the Tax Reform Act of 1986, Congress has inserted-or in some cases re-inserted-a wide range of tax breaks into the tax code. However, some of this progressivity is eroded by state and local taxes, many of which are regressive. The federal tax system is still progressive overall. Federal payroll and excise taxes, however, are regressive, placing a heavier burden on low- and middle-income taxpayers than on upper-income individuals. Both the individual and corporate income tax, as well as the estate tax, are progressive: Higher-income households pay a higher percentage of their income for these taxes than low- and middle-income earners. The current federal tax system includes an income tax on individuals and corporations a payroll tax on wages and salaries that funds Social Security and part of Medicare an estate tax that, in 2013, only affected the wealthiest 0.18 percent of estates and a set of federal excise taxes targeting specific purposes or products, including the sale of cigarettes, gas, and alcohol. economy and the federal budget over the long term. Combined, these issues will present increasing challenges for the U.S. Anti-tax slogans and too-good-to-be-true proposals to replace the current tax system are a smoke screen to avoid the reality the United States faces today: rapid income growth and profits at the top end of the income scale, as well as an aging population. America’s current tax code is out of step with the times-but not necessarily in the way that some politicians want voters to believe.
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