Notions of “Fairness”
While the concept of fairness in the US is usually the equal application of a charge on anyone regardless of race or religion, income tax sharply divides Republicans and Democrats.
When it comes to financial charges, most Americans agree that “fairness” means equal application regardless of race, creed, or color. A movie ticket is the classic example: adults, children under 12, and senior citizens over 65 each pay the same price, with no variation for ethnicity or religion. Sales tax works similarly. Whether you are buying a small item or a large one, the same percentage applies to everyone making the purchase.
Income tax, however, divides Americans sharply along political lines. Those on the Right argue that taxes are already too high and that people who take financial risks should not be punished when those risks pay off. Those on the Left frequently contend that great wealth is built on systemic advantages, and that the wealthy should contribute more to the public good by paying their “fair share.” Neither side is entirely wrong, which is precisely what makes the debate so durable.
A tax that escalates with earnings is technically labeled “progressive,” while one applied at the same rate across all income levels is called a “flat” or, pejoratively, a “regressive” tax. In practice, though, those at the very highest wealth tiers often pay a lower effective rate on their total income than those in the upper middle class, thanks to a web of deductions and preferential rates on investment income.
Consumption Taxes vs. Wealth Taxes: The “Fairness” Alternatives
The ongoing debate has pushed structural alternatives to the forefront of fiscal policy. Proponents of a national consumption tax, often referred to as the FairTax, argue for taxing what people spend rather than what they earn, which its supporters say better rewards productivity. To prevent this from hitting lower-income households hardest, such proposals rely on a system of “prebates” covering essential goods. This stands in contrast to the traditional European model, which pairs high Value-Added Taxes (VAT) with progressive income brackets to fund broad social safety nets. Both approaches rest on competing visions of what fairness actually looks like.
History of Income Tax
Although the Republican platform advocates reducing taxes and shrinking the Federal government while Democrats want more taxation and more Federal government power, Abraham Lincoln, the first Republican president, was also the first to enact an income tax in 1861 to help fund the Union Army during The Civil War.
The American economic system has historically succeeded in large part because its foundations rest on private property rights and the principle of equal opportunity. Anyone, in theory, can pursue the American dream through their own efforts. That cultural premise has always informed the public debate over how much government should take from the fruits of that effort.
Despite being the nation’s first Republican president, Abraham Lincoln created the first federal income tax in 1861 to fund the Union side of the Civil War. It began as a flat tax of 3% on incomes over $800. As the war dragged on, Congress amended it in 1862 to a graduated structure: 3% on incomes between $600 and $10,000, and 5% on everything above that. Public pressure led to the tax’s repeal in 1872.
Income tax was revived in 1913 under President Woodrow Wilson. The more decisive structural shift, however, came in 1943, when the payroll withholding system was introduced to fund World War II. By converting collection from an annual bill to an automatic payroll deduction, the government fundamentally changed how Americans perceive their take-home pay. Federal spending and the scope of income tax collection have expanded continuously in the decades since.
At the Root of Federal Income Tax Inequality: Progressive Income Tax
The Progressive Income Tax system is the major reason for the discrepancy between why some citizens might pay in the mid 4-figures in tax, while other might pay many times more.
The progressive income tax has come a long way from Lincoln’s two-tier structure. Today, the federal system has seven brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Because the rates are marginal, each tier only applies to the slice of income that falls within it. A taxpayer earning $50,000 pays roughly 10% on the first $12,000, 12% on the next $36,000, and 22% on the remaining $2,000. The result is a personal tax burden that varies significantly across income levels, with the effective rate rising as earnings climb. In theory, this concentrates the burden on those most able to bear it. In practice, it is considerably more complicated.
Why The Rich Treat Good Accountants Like Rock Stars
The ultrarich highly value skilled accountants who know how to navigate the voluminous US tax code – even organized crime revered Meyer Lansky for his acumen in laundering and legitimizing the illegal money of mobsters like Bugsy Siegel and Lucky Luciano.
As the tax code grew more complex, politicians created loopholes that benefit well-connected donors and, often, themselves. Only those who can afford skilled professional accountants have a realistic shot at using them. According to the National Taxpayers Union Foundation, the Internal Revenue Code alone reached approximately 4.2 million words by 2024, and when IRS regulations are factored in, the total exceeds 16 million words. That is a document no individual taxpayer can realistically navigate without help.
Deductions, exemptions, specialty credits, and a range of other provisions at both the federal and state levels can reduce taxable income dramatically, even for those earning seven figures or more. Capital gains and passive income are taxed at lower rates than ordinary wages. High-net-worth individuals frequently use the “borrow-and-die” strategy: taking low-interest loans against their equity portfolios to fund their lifestyles, sidestepping taxable capital gains events entirely. The accountants who master these techniques are worth every dollar they charge.
The numbers that result from all of this are striking. According to the most recent IRS data for tax year 2023, the top 50% of earners (those reporting adjusted gross income above $53,801) paid 97% of all federal individual income taxes. The top 5% paid 59.3% of the total. The top 1%, a group that begins at $675,602 in AGI, paid 38.4% of all federal income taxes while earning 20.6% of the nation’s total income. Their average effective rate was 26.3%, roughly seven times the 3.7% average rate paid by the bottom half. Those below $53,801 in income paid 3.3% of the national federal income tax total combined.
Even organized crime has long recognized the value of skilled financial minds. For centuries, Chinese Triads placed the highest non-leadership honor, the White Paper Fan (415) rank, on their designated business advisors and accountants, who managed the proceeds from criminal enterprises. In American organized crime, Meyer Lansky was the key figure in legitimizing the gambling and bootlegging money of Bugsy Siegel, Lucky Luciano, and others. By contrast, for all of Al Capone’s violent crimes, it was ultimately tax evasion that gave the FBI the grounds to arrest and convict him.
Tax inequality from a purely mathematical perspective is not really in dispute. What remains bitterly contested is whether that inequality is “fair.” Since this article was first published, the landscape has shifted in one significant way: President Trump signed the One Big Beautiful Bill Act into law on July 4, 2025, permanently extending the individual income tax rates set by the 2017 Tax Cuts and Jobs Act, which were scheduled to expire at the end of that year. The legislation also introduced temporary deductions for tip income and overtime pay, among other provisions. The question of eliminating federal income tax entirely, which both Trump and Treasury Secretary Bessent had floated, remains off the table for now, a reflection of the steep reality that individual income taxes historically account for roughly half of all federal revenues. Whether rising tariff collections could ever offset that gap remains an open question as the broader debate over the structure and fairness of the tax code continues.
Editor’s note: This article has been updated to reflect 2023 IRS data showing the top 1% income threshold rose to $675,602 and their share of federal income taxes fell to 38.4%, while the top 5% paid 59.3% and the bottom 50% paid 3.3%. It also incorporates the July 2025 passage of the One Big Beautiful Bill Act, which permanently extended TCJA individual tax rates, and updated figures on the size of the federal tax code from the National Taxpayers Union Foundation.
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