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Finance: What is a Tax Bracket? 24 Views


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Description:

Tax brackets set the incremental rates at which the financially more successful are taxed.

Language:
English Language

Transcript

00:00

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

00:09

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

00:14

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

00:19

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

00:24

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

00:29

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

00:34

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

00:39

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

00:43

in a tizzy it's the brackets that set the

00:46

incremental rates at which the financially more successful are taxed

00:51

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

00:55

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

00:59

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

01:03

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

01:10

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

01:15

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

01:20

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

01:25

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

01:30

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

01:34

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

01:41

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

01:46

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

01:50

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

01:56

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

02:01

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

02:04

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

02:10

and on about how making that extra 112 dollars

02:13

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

02:18

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

02:22

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

02:26

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

02:31

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

02:36

these days never mind [Ayn Rand grave appears]

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