1440 Explores How the US Income Tax Actually Works
Apr 15, 2026
Michael Linden, senior policy fellow and former White House OMB official, explains how the US income tax system really works. He unpacks marginal tax brackets, why about half of households pay no federal income tax, the difference between payroll and income taxes, and how wealth is taxed through capital gains and strategies like buy, borrow, die.
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Taxable Income Is Smaller Than Your Paycheck
- Taxable income is your gross earnings minus deductions and exemptions, so not every dollar you earn is taxed.
- Examples include tax-deferred retirement contributions and the standard deduction which reduce the pile before the tax calculation.
Brackets Apply In Layers Not To All Income
- Tax brackets tax income in layers, so your bracket rate only applies to the top portion of your taxable income.
- Sony Kassam uses the bucket metaphor: first dollars hit 10%, then 12%, then up to 37% on the last dollars.
Progressivity And Why Many Owe No Income Tax
- The income tax is progressive: higher earners pay a larger share of income in taxes than lower earners.
- Because of deductions and exemptions, many lower-income households end up with no taxable income and owe no federal income tax.