Ten Myths About the U.S. Tax System (Update)

What It Covers

Tax policy expert Jessica Riedel, formerly of the Manhattan Institute and now at Brookings, debunks 10 widespread tax myths held by both conservatives and liberals, while warning that the U.S. national debt — currently $39 trillion at 124% of GDP — is on a trajectory no economic model can sustain, driven more by spending than taxation.

Key Questions Answered

• •Tax progressivity reality: The U.S. already operates the most progressive tax system in the OECD — more so than Europe. The top 1% pays a 33% effective federal tax rate; the middle class pays 12%; the bottom 40% collectively pays a negative income tax rate after credits. Understanding this baseline prevents both parties from misrepresenting who actually carries the federal tax burden.
• •Middle-class undertaxation: The median American family pays roughly 3% in federal income tax and 12% when including payroll and pass-through corporate taxes — the lowest middle-class rate since before World War II, and roughly half the rate paid when Reagan took office. Europe collects more revenue not by taxing the rich more, but by levying high payroll taxes and value-added taxes on middle and lower earners.
• •Deficit math on the wealthy: Seizing 100% of every U.S. billionaire's total wealth would fund approximately eight months of government spending — once, not annually. Even a 100% income tax on all earnings above $500,000 would not balance the budget. Deficit reduction that ignores middle-class taxation and entitlement reform is arithmetically impossible, regardless of how aggressively the wealthy are taxed.
• •Social Security structural gap: Social Security and Medicare are not pre-funded programs — payroll taxes pay current beneficiaries, not future ones. Over the next 30 years, the two programs face a combined $124 trillion cash shortfall. The typical Medicare recipient receives triple what they paid in. Riedel's stabilization plan addresses this through three levers: higher payroll taxes, a raised eligibility age, and reduced benefits for high-income retirees.
• •Spending vs. tax cuts as deficit driver: Since 2000, tax cuts account for roughly one-third of rising deficits, while spending increases account for two-thirds. Federal spending has climbed from a historic 20% of GDP toward a projected 33% over 30 years. Tax revenue, even optimally structured, realistically tops out around 20% of GDP — meaning spending reform is the dominant variable in any credible long-term fiscal stabilization plan.
• •2025 tax legislation cost: The One Big Beautiful Bill Act made the 2017 Trump tax cuts permanent and added new provisions — no tax on tips, overtime, or car loan interest, plus a quadrupled SALT deduction cap — bringing the estimated 10-year fiscal cost to $5 trillion. Rather than the traditional Republican framework of broadening the base to lower rates, the legislation creates new loopholes while simultaneously cutting rates.