FREE NEWSLETTER
Many American’s perception of the taxes they pay is seriously distorted. Many seem to believe that withholding from their pay is the taxes they actually pay or that taxes due at year end reflect higher taxes rather than likely under withholding.
A major misunderstanding is that the tax bracket they are in represents their real tax rate. I know taxes are complicated, but not that complicated.
I conducted a simple exercise. Using several AI tools I calculate the 2026 federal income tax for a household with two young children earning the US median income.
I used $82,500 household income. The estimated federal income tax owed was about $1,200 or an effective tax rate of 1.454%
I bet if you asked someone at that income level their perception of income taxes would not match the reality.
Sure it’s just one example, but the United States has one of the lowest overall tax burdens among developed (OECD) countries, typically ranking near the bottom—around 31st–32nd out of 38 OECD members—when measured by total tax revenue as a percentage of GDP. Most countries use a VAT in addition to income taxes.
Given the fiscal state of the Country, one could make a logical argument for higher taxes-but I wouldn’t suggest it, most people feel they pay too much already.
Good example, Mr. Q., and good to give perspective on the tax system. And no doubt but that there are taxpayers in the situation you described. But tweak it slightly – single person instead of a family, married couple with two salaries and no kids – and the tax burden gets considerably higher. Open question about which is more representative of the country. And I’d politely suggest that HD readers are in a different situation / stage of life too. But the main point that federal income tax is reasonably low (as compared to other nations) holds true.
I am 83 and married. Use standard deduction. Income from a pension, SS, interest and dividends and RMD. Last year our effective tax rate was 18%. Still seems like a pretty good deal by comparison.
A friend in England paid much higher taxes before retiring, including high payroll taxes, but in retirement he pays nothing for healthcare, no premiums, no out of pocket costs, it’s “free” he says. Make you wonder about the tradeoffs.
Many Americans think they can have our tax rates (or lower) and “free” healthcare.🤑
Yup, there ain’t any free. The sales tax / VAT in the UK is 20% on most things (other than food and children’s clothing). Tell an American that they have to pay that much and loads of tea go into the harbor. . . .
The tea in the harbor was actually in protest to a tax DECREASE