If you’re a working American, you know that April 15 is Tax Day. But do you know how much the average American pays in taxes?
Stumped? You’re not alone.
The American tax code is complex, confusing, and full of carve-outs. Very few people know their average tax rate.
The good news is that there are ways policymakers could help. But first, let’s look at what you pay.
Your average tax rate is the total tax you pay divided by your taxable income.
What is taxable income, you ask?
It’s not your salary or wages. Taxable income is all your earnings from those sources, plus bonuses, tips, interest, realized investment gains, and even lottery winnings, minus deductions and exemptions.
Like we said, determining the average American’s taxes is difficult.
But it is possible. According to the Tax Foundation, in 2022 (the latest year for which we have data), the average federal income tax rate was 14.5%.
That’s just the average for everyone, however. The United States has a progressive income tax code, which means people who earn more pay more.
The wealthiest Americans paid an average tax rate of 23.1%, six times higher than the 3.7% average rate paid by the bottom 50% of taxpayers.
If you feel like you are paying a lot more in taxes, you’re right.
On top of federal income taxes, there are federal payroll taxes that go to programs like Social Security and Medicare, state income taxes, local property taxes, and sales taxes.
No wonder 59% of Americans told Gallup they think they pay too much in federal taxes.
There’s another problem with the American tax code.
If a tax system is confusing, packed with carve-outs, and loaded with “hidden” costs, it’s hard for any American without an accounting degree to see exactly what they pay — or whether they’re getting results.
In 2024, the Tax Foundation asked 2,700 Americans some “basic” tax code questions. What they found was startling:
Why does it matter if Americans don’t know how much they’re taxed?
Because it is much easier to support higher spending and taxes when we have no idea how much our tax bill actually is.
Lawmakers should make it easier to understand the implications.
Local, state, and federal tax burdens affect behavior. Tax cuts tend to spur economic activity, but if working more means you’re going to owe Uncle Sam a greater share of your earnings on Tax Day, maybe you’ll skip those extra hours. The same is true with investing.
Businesses also won’t have as much money to hire new workers, enhance employee benefits, or expand in their communities when their tax burdens are high.
Many politicians ignore this economic reality and make unfounded claims about tax policy.
Myth No. 1 is that lowering taxes will starve government programs.
We know this claim is false because Congress cut taxes and reformed the tax code in 2017. Seven years later, the Congressional Budget Office found federal revenues totaled 17.2% of the overall economy in 2024 — right at their 30-year historical average.
Myth No. 2 is that raising taxes will reduce deficits.
Wrong again. Economists at the nonpartisan Joint Committee on Taxation found that tax increases don’t inherently translate into higher revenue.
We also know that when governments treat tax hikes as a substitute for fiscal responsibility, they delay the reforms needed to ensure long-term budget sustainability.
If lawmakers care about maintaining a strong economy that encourages innovation, investment, and job creation, they must keep taxes low. And they must reduce complexity by creating a simpler, fairer, and economically neutral tax code.
These reforms would move power closer to families, workers, and local communities, unleashing prosperity for all.
Learn more about why keeping spending and average American taxes low helps families and the economy.
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