Economics: Employment, Budgets, and Taxes 209
Progressive taxes take an increasing percentage as income rises, whereas regres-sive taxes are proportionately higher on low incomes. The example of OASDI pay-roll taxes (see Chapter 7) demonstrates regressivity: people with lower incomes pay a greater proportion of their income to Social Security taxes. The individual income tax structure is an example of a progressive system. Box 9.5 outlines the tax rates for 2008. As a person’s income increases, he or she pays a higher rate on the higher portions of income. It is important to note a misconception that people often have about tax rates. You might hear someone saying they do not want to earn more money because their tax rate will go up. As the rates in Box 9.5 demonstrate, one only pays a higher rate on that portion of the income that goes up.
The issue of who should shoulder the burden of taxes is controversial. Today, most people feel they pay too much in taxes and so tax cuts have become popular politically. Because the income tax is removed directly from our paychecks, it creates an individual sense of paying for government. At times, if government performs ac-cording to our wants, that personal connection is positive. When government spend-ing does not reflect our wishes, we resent paying taxes and the connection is negative. And at times, there are people who favor government spending and those who do not. The two opposing sides create a conflict that contributes to controversy over taxes.