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The U.S. tax code has long been the subject of criticism. For years, many advocates have argued that wealthy taxpayers and large corporations get away with avoiding taxes while hard-working average Americans – those with little money in their savings accounts – get stuck forking over a large share of their income to the IRS.
If you think the U.S. tax system is unfair, guess what? Our president agrees with you. And in his recent State of the Union address, he pledged to tackle that issue to ensure that the wealthy pay their share and that moderate earners aren’t unduly burdened.
A system that’s clearly loaded with flaws
When the president of the United States says the country’s tax system has problems, that carries a lot of weight. And that’s precisely the message President Biden shared with the public during his Feb. 7 State of the Union address.
During his speech, Biden said point blank, “I think a lot of you at home agree with me that our present tax system is simply unfair.”
He then went on to point out that in 2020, 55 of the biggest U.S. companies made $40 billion in profits and paid $0 in federal income taxes. He then said, “Now, because of the law I signed, billion-dollar companies have to pay a minimum of 15%. Just 15%. That’s less than a nurse pays.”
The U.S. tax system works on a marginal basis, so workers’ highest dollars of earnings are taxed at a higher rate than their lowest dollars of earnings. But even so, there are numerous loopholes that allow companies and the wealthy to avoid taxes or shrink their tax bills substantially. And Biden clearly isn’t a fan. As such, he plans to keep pushing for tax reform, and also, for tax audits on wealthy taxpayers who may not be following the law.
Should Americans worry about higher taxes?
The average taxpayer does not have to worry about an uptick in taxes owed if Biden has his way. In fact, the president clearly stated, “Under my plan, nobody earning less than $400,000 a year will pay an additional penny in taxes. Nobody. Not one penny.”
That said, Biden does want to impose a billionaire minimum tax because, as he puts it, “No billionaire should pay a lower tax rate than a school teacher or a firefighter.”
Biden also pointed out that he signed a law designed to crack down on wealthy tax-filers who may be cheating the system. The IRS, statistically speaking, audits only a small percentage of tax returns due to a lack of funding and manpower. But the IRS received about $80 billion in funding as part of the recent Inflation Reduction Act, and part of that money is meant to support increased audit activity.
Now, this doesn’t mean the average taxpayer has to worry about getting audited. But the hope is that wealthy taxpayers who may have bent the rules in the past will stop doing so for fear of getting caught.
All told, the U.S. tax code is far from perfect. But the fact that Biden is taking steps to make it more equitable is a very positive thing.
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