The US uses a progressive tax system that imposes taxes with an increase in income such that the more an individual earns, the more he/she pays taxes. Grouping taxpayers typically achieve this by income ranges, so-called tax brackets. The progressive tax rationale is that individuals with low wages would be disproportionately burdened if a flat tax rate is imposed. The dollar sum owed might be smaller, but the impact on their real spending power is more prominent. The extent to how progressive a tax structure relies on the amount of the taxation rate transferred to higher earnings.
However, as described above, passive income is treated differently such that it’s is taxed only at the passive income rate. In other words, higher rates are paid on earned income and lower rates on passive income. But, judging from the fact that when the tax deductions and credits are applied, the lower-income taxpayers pay no federal taxes, I would argue that it's a fair system. We should not conclude that the system is entirely wrong when it is also benefitting the low-income earners. I consider this one of the significant benefits of the US tax system.
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When we consider classes, that is, the rich and the poor, the system generally seems unfair. This is because passive income is regarded as the primary source of income for the investors who fall under the category of the more affluent class. They make more money than a large number of the poor combined. I would therefore recommend a system where even though it's not a flat system, passive income and ordinary income are treated the same. This system will enable the government to generate more tax revenue overcoming some of the issues it faces in relation to expenditure.
