2022 Changes to Income Taxes and the Proportional Rate System
The United States federal government has almost exclusively used a progressive income tax system, but several states use a proportional system. A proportional rate system taxes individuals at the same rate, no matter how much they earn.
That means a very low-income earner would pay the identical percentage as a very high-income earner, but the amounts would be very different. Sales tax is a proportional system, since the rate does not consider your income, only the price of the items.
A progressive income tax system, on the other hand, sets a rate corresponding to the amount earned. “Progressive” infers the rate goes from low to high, which means that higher-income groups pay a higher percentage than lower-income groups.
Below is an example of a progressive system:
- Very-low income – 0 %
- Low income – 10 %
- Middle income – 20 %
- High income – 25 %
- Very-high income – 30 %
Both tax systems have pros and cons depending on your beliefs and income bracket. Consider the following scenarios:
|Family of Four||Progressive Tax||Proportional Tax (20%)|
|Low income – $50,000||$5,000 (10%)||$10,000|
|Middle income – $104,000||$20,800 (20%)||$20,800|
|High income – $160,000||$40,000 (25%)||$32,000|
A progressive system shifts the financial weight to those with higher incomes. Taxes from high earners help fund services we all use, like roads, public safety, and the military, and the government tends to collect more at a progressive rate.
However, a progressive system is subject to marginal income differences, which can mean big rate differences. For example, a difference of $1 could determine if the rate is 10 or 20%. Progressive tax may feel like the government is penalizing you for earning more since high earners disproportionately take on the bulk of government funding.
You may believe a proportional system or flat rate is equal and fair if you have a generous income. A flat rate can be easier to calculate and removes the concern about paying a higher rate for earning a little more.
A proportional system could seem unreasonably more expensive if you are an average or low earner. Almost everyone needs to pay for living costs, and the Federal Poverty Level (FPL) dictates the minimum amount needed to cover basics. Saving $5,000 could mean a lot more if you earn $50,000 versus $150,000.
Still, the 11 following states use a proportional income tax rate:
- Colorado – 4.55 %
- Illinois – 4.95 %
- Indiana – 3.23 %
- Kentucky – 5 %
- Massachusetts – 5 %
- Michigan – 4.25 %
- New Hampshire – 5 %
- North Carolina – 5.25 %
- Pennsylvania – 3.07 %
- Utah – 4.95 %
Aside from the eight states that do not have an income tax (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming), the rest use a progressive system. State income tax rates range between 1 and 14%.
Some states have many income brackets, like Hawaii, which has 12 groups. Others have just three or four brackets. States with many brackets often have the highest incomes, such as New York (8), New Jersey (7), and the District of Columbia (6), which have income caps of more than one million dollars.
Income Tax Rate in 2022
The federal government uses a progressive system to set rates for different income brackets, and percentages are subject to change each year.
|Rate||Income (Single Filer)||Income (Married Joint Filers)|
|10 %||$10,275 or less||$20,550 or less|
|12 %||$10,275 to $41,775||$20,550 to $83,550|
|22 %||$41,775 to $89,075||$83,550 to $178,150|
|24 %||$89,075 to $170,050||$178,150 to $340,100|
|32 %||$170,050 to $215,950||$340,100 to $431,900|
|35 %||$215,950 to $539,900||$431,900 to $647,850|
|37 %||More than $539,900||More than $647,850|
The Internal Revenue Service (IRS) gives taxpayers a standard proportional deduction to reduce their financial responsibility. The deduction amount depends on the filing status, such as single or head of household, regardless of annual income.