ShmoopTube

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finance a la shmoop what is a tax bracket alright taxes maxes who needs

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them right well in this country we live under what is called a quote progressive [Map of USA appears]

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tax system unquote and yes it is a politically charged name like

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progressive sounds like it can't possibly be a bad thing but can it well [Progressive in the fire]

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in the taxes sense progressive means that the more money you make the more

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you get taxed which can be viewed as a punishment for being financially

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successful where's Ayn Rand anyway to help us celebrate mediocrity sloth and [Ayn Rand appears]

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socialism hmm okay okay we're just framing tax brackets here don't get all

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in a tizzy it's the brackets that set the

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incremental rates at which the financially more successful are taxed

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and those tax brackets change all the time so we won't even bother with the [Tax bracket transforms into cocoon]

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real numbers of today as we're sure they'll be totally different in a few

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years but the basic idea is that as in the following completely made-up example

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you'll pay federal income taxes of zero tax in bracket one here on the first and

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a seven grand that you earn move over to bracket two and from seven grand to 20

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grand you'll pay 10 percent tax or ten percent on that incremental 13 grand or

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1,300 bucks move to bracket three and from 20 to 50 grand you'll pay 20 [Income tax bracket table appears]

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percent or six grand tax on that 30 grand spread from 20 to 50 right here

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move to the next bracket which will cleverly named 4 and you pay 30 percent

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tax from 50 grand to 120 grand or 0.3 times at 70 grand spread or 21 in

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taxes at bracket 5 in this very made-up example you'll pay 40 percent tax from a

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hundred 20 grand to infinity so if you made half a million dollars last year

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chasing corporate ambulances as a sewer you know a lawyer who sues corporations [Lawyer chasing ambulance in a car]

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when their stocks go down then you'll pay 40 percent tax on the last three

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hundred 80 grand you earned or point four times three eighty or a hundred

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fifty two grand so why do the brackets matter like why do some people whine on

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and on about how making that extra 112 dollars

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will put them into the next tax bracket and well then they're really screwed why [Man crying in office chair]

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oh why because they're idiots or at least they didn't watch this video

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because the next tax bracket on its own doesn't mean anything other than the

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fact that on the incremental dollars you earned you'll pay taxes at that higher [Earnings bracket highlighted]

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rate so in the immortal words of Iran well okay yeah she isn't saying much

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these days never mind [Ayn Rand grave appears]

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