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What Is Tax Fairness?
Tax fairness is a concept which stipulates that a government’s tax system should be equitable to all citizens. Opinions differ, however, in just how to reach tax fairness.
The solutions are varied, but most fall under three broad systems of taxation. They include regressive taxation, progressive taxation, and blended taxation.
Key Takeaways
- Advocates of a regressive tax say it is fair because everyone pays the same tax for the same goods and services.
- Advocates of a progressive tax say the richest can afford to pay more into a system that has benefitted them more.
- Taxation in the U.S. takes a blended approach. The income tax is progressive while the FICA tax is regressive.
Generally, advocates of tax fairness believe that taxes should be based on a person’s or company’s ability to pay but balanced by the needs of society as a whole for government services.
Understanding Tax Fairness
Any notion of tax fairness attempts to strike a balance between what is fair to the individual and what is fair to society as a whole.
The Individual’s Right
A tax regime that emphasizes fairness to the individual will allow its citizens to keep most of the money they make or the wealth they own because it is, after all, their property. However, such a tax regime tends to have many exemptions for special cases, created in response to interest groups that make a case for special tax treatment.
Theoretically, the most deserving individuals will pay the least tax, but there may not be a consensus on who are the most deserving. Some would cite the poorest and most disadvantaged. Others may point to the richest who are most able to benefit others by spending money and creating jobs.
The Common Good
A tax regime that focuses on the good of the society as a whole might conclude that a primary function of the tax code should be the redistribution of wealth. For example, generational wealth may be taxed by a high inheritance tax, or high earners may be taxed more to bring their pay in line with other workers.
Most advocates of tax fairness tend to advocate for closing loopholes in the tax code that allow certain individuals and corporations to avoid paying taxes altogether, although every one of those loopholes is strongly defended by individuals or groups who believe they deserve special treatment.
Three Tax Concepts
Groups that focus on tax fairness generally choose one of three possible tax systems. These systems are regressive taxation, proportional taxation, and progressive taxation.
Regressive Taxation
Regressive taxation taxes everyone the same amount, regardless of their ability to pay. As a result, the poor pay a much higher rate than the rich as a percentage of their disposable income.
A state sales tax is an example of this type of taxation. The poorest consumer pays the same amount of tax for a gallon of milk as the richest person.
A flat tax is often characterized as a regressive tax. For example, imagine a tax system that imposes a flat 15% income tax and no other taxes. A family with an income of $180,000 will pay $27,000. A family with a $30,000 income will pay only $4,500. However, when considered as an issue of tax fairness, the lower-income family may be getting the lesser deal. The family’s real standard of living has been compromised while the richer family is untouched.
Progressive Taxation
Progressive taxes charge a higher tax rate on higher amounts of income. The U.S. income tax is a progressive tax, with rates ranging from 0% to 37%.
Contrary to popular opinion, this does not mean that a rich person pays 37% of his or her income in taxes in the U.S. That highest percentage is levied only on the amount of the person’s income that exceeds a particular level. That is how a progressive tax works.
As of the 2025 tax year, all individual taxpayers pay 10% on the first $11,925 in income. The individual must pay 12% on income above $11,925 to $48,475, and so on through the tax brackets.
The intention of a progressive tax rate is to charge an effective tax rate that is lowest on the lowest earners, and higher on the higher earners.
Progressive taxes may also have exemptions, deductions, and credits that reduce the effective tax rate on certain groups of taxpayers, such as parents with dependent children, or rewards certain behaviors, such as saving for retirement or donating to charity.
Progressive taxes benefit low-income individuals by allowing them to keep a greater percentage of their earnings. In theory, this fuels economic activity, as low-wage earners spend a greater percentage of their income on essential goods and services.
Blended Taxation
In practice, most tax authorities blend regressive taxes and progressive taxes.
Many states have a state-wide sales tax but also have a progressive income tax.
The federal government has a progressive income tax, with the exception of the FICA payroll tax, which is a flat tax.
And, both state and federal tax authorities shield their lowest-income residents from income taxes.
How Can You Determine if Taxes Are Fair?
Two criterion used to judge tax fairness are ability to pay and benefits received. Under the ability to pay criterion, those with more resources should pay more taxes than those with fewer resources. In contrast, the benefits received criterion states that those who receive benefits from public services should pay for them.
Who Pays the Most Tax in The U.S.?
High-income earners pay the majority of taxes in the U.S. In 2021, the top half of taxpayers paid 97.7% of all taxes, while the top 1% alone paid 45.8%. That said, some groups argue that high-income earners could pay more and that the top marginal tax brackets should increase.
Will the Tax Code Change After 2025?
The Tax Cuts and Jobs Act (TCJA) adjusted the federal income tax brackets, including lowering the top marginal bracket from 39.6% to 37%. However, this act did not make tax cuts permanent. Unless Congress steps in, the rate cuts sunset after 2025.
The Bottom Line
Tax fairness is a complicated topic that divides taxpayers, policymakers, and economists. Advocates of progressive taxes argue that those with the greatest ability to pay should bear the brunt of financing public services. On the other hand, opponents argue that raising top marginal tax brackets unfairly places tax burdens on high-income earners who already pay the bulk of taxes.