@@manujohn99 the government gives you that amount as a deduction that doesn't need to be taxed which is why the effective rate was 10.74% even though the weighted average would have been higher if all money was actually taxed.
The hard part about that is that (as we found out in 2018) lawmakers CHANGE IT !! Hahaha. It's hard to make a video that's got some long-term life to it. But we'll add it to our list!
It does significantly change the effective tax rate though. Those in lower income brackets often don’t make use of the deductions they could have. High earners make use of most of them. On top of that, the highest earners find ways to have income that is taxed even lower, like capital gains tax. So “discouraging wealth” is not really a concern in reality.
This would have been a better direction for the video. The US tax code isn't complicated due to the progressive tax system. It is because of all the numerous deductions and credits.
Some people think it’s better to avoid a raise so they don’t enter the next tax bracket ... But they don’t realize that it’s incremental! Good clarity 👍
The richer you are, the more available tax deductions are to you, as well as more expensive tax professionals to help you find ways to save on taxes. Also, the reason why our tax system is one of the most complex is NOT because we have a progressive tax system!!! Not even remotely. It's about the format, countless loopholes, and (most importantly) the fact that each citizen has to completely figure out and submit our taxes then the government checks it over for mistakes. While in other countries, it's the exact opposite!! The government files everyone's taxes and submits them to each citizen, where they may look over it and see if there are any additional income sources or deductions that were missed
Mr. Sharp a simple tax without doubt will be better for tax collection and the economy, now the rich pay a lot to avoid taxes because there is a lot to be gained a simple tax code will be better for everyone and it would make the economy for efficient (because of less deadweight). We need a simple tax code not the government to do our taxes
@@vicenteyanez671 but that's how many other 1st world countries make their tax system simpler. In my opinion, it's best to not try and reinvent the wheel. There is a lot we can learn from other countries. But neither of our ideas will ever be put into action with in the near future because there are literal thousands of companies that lobby against because they profit so much off of our confusion
Mr. Sharp you are definitely right, its very unlikely the tax code will ever be reformed, too many god damn lobbyists, and most people don’t even care.
At 1:10: One of the main reason why taxes are so complicated to file in the US is because Intuit (makers of TurboTax) have lobbied against simplified filling for decades.
@@OGBhyve i dunno 3 or 4 of my colleagues, same jobs.. dont even buy stocks or anything, use tax preparers. Some people are really just dense or have been told repeatedly "taxes are hard".
@@aakksshhaayy In most countries the IRS does it for you and hands you the paperwork in case you have any complaints about something they forgot. The US could basically already do this.
why In the hell werent we taught this in school, this is making me extremely angry I would say 60% of things that were taught in high school are completely useless as an adult
Agreed. In US high school I was getting As and Bs. Went to Community College and everything I learned in high school was useless. It is in College that you may learn something if you take the right classes. My advice take economics and tax preparation classes. In the tax preparation class you find out that your 401k reduces your earned income based on how much you contribute. If you are dirt poor you can qualify for the earn income credit. You can deduct your gambling losses and you get my drift.
I think the main problem with the United States tax system (that I think most of us can agree on) is that it’s not used correctly by the government to fund public service adequately enough 🤷🏽♀️
The welfare system in the United States is currently considered an imbalanced and flawed system, yet hundreds of billions of dollars are poured into it every year
The system of tax brackets isn't that complicated - it's the tangle of tax deductions and tax credits (plus the other categories of taxed wealth, like capital gains, dividends, inheritance, etc.) that confuses people. I think we'd all love to see a video about that!
jsteele07189 I didn’t understand a single phrase in the second clause of your sentence. Hope Two Cents sees this and makes this video-god knows my school would never teach personal finance/taxes.
Belgian here. It's true, our taxes are huge and we are only talking about income tax in this video. You'd be amazed at the plethora of all other tax rates we pay here!
@@JPWRana that is true but there are caveats. Politicians are frequently openly caught directly profiting of public money but more importantly: our services are good but people also become very dependent of these same services and thus the government. Finally: with the huge wave of retirements and longer life spans, our deficits and debt are increasing rapidly and the whole system is crumbling under its weight. New taxes are very unpopular as well as cutting in government expenses Both are very hard to defend in the climate of the ridiculously high tax rates we currently have.
India also has progressive tax and we were taught this tax calculation in 10th grade, disguised as mathematics. And I feel thankful to my education system for doing one thing right in my education.
Only criticism is the usage of the word "fair", a morally loaded term, when talking about proportional taxation. "Fairness" can be argued for any type of taxation as "fairness" is a subjective term, not so much an objective analysis.
@Traplover, That's their WHOLE point of using that word. We're taught that word in early childhood under terms synonymous with "equality" and "just" and now we expect adults to somehow have a different moral definition of the word. Not saying your criticism is wrong, but it's incredibly/unrealistically wishful. You're dealing with people's money, political views and emotions all in one topic. So yeah, the word "fair" is absolutely valid in this conversation/topic.
@@Everydayprojects365 Isn't the worst thing, that sometimes fair is equal too. The thing is that there are people who want unfair because they are in the better position, in terms of tax that is.
MorgurEdits yea like if one works more hours and gets more money it’s both fair and equal lol this is true.we need more education in this country period.
*GREAT VIDEO GUYS* | Yes, our tax system is complicated, but that’s partly due to the government wanting to push or incentivize certain types of activities such as rental properties, self-employed businesses, depreciating assets, etc. BUT we do end up taxing higher earners a lot more than we tax lower-income earners when factoring in deductions. VERY SIMPLE AND GOOD EXPLANATION! 😎👍🏻
Some numbers to think about (as of 2020): The top 50 percent of all taxpayers paid 97.7 percent of all federal individual income taxes, while the bottom 50 percent paid the remaining 2.3 percent. The top 1 percent in America paid 42.3 percent of all income taxes in the country. Is that fair?
Personally, I don't mind having to pay taxes, I've always held the mantra of 'Taxation is the price you pay for living in a civilized society.' Greetings from the UK! Really enjoy the insight into life in the USA that your videos give!
Agreed. They have all of last year's info (for most of us) just adjust what is needed, send me an "invoice" and I can pay it. Abdul . Work more and make more. Not sure how you would need to know how much you can make, unless you are a means tested program that would take benefits away for doing better. Disclaimer: I support a #FreedomDividend or UBI yang2020.com
It has been proposed several times in the past, but was quickly shot down thanks to aggressive lobbying from tax prep companies like H&R Block and Turbo Tax
My taxes should be processed by the government, and I should only have to do any work if I notice a problem or need to apply for special tax breaks. That's how a lot of other counties do it. Let's stop being backward and wasting time/money. Come on, people!
would it surprise you to know companies like turbotax and H&R Block have lobbyists that want to keep the tax system complicated because it gives a reason for their software company to exist. If taxes became easy tomorrow, turbotax would go out of business.
@@wetokebitcoins1769 I don't know why. We still have H&R Block IN Australia, and my return takes 5.minutes. They would just have to.move into the financial planning spaces rather than just filing paperwork.
Tax laws can be so complex, and it’s super helpful to break them down like this. Understanding how different policies can impact our finances is crucial for making informed decisions.
Making profitable investments during this time of political change can be risky without that insight. For me, working with an adviser is the best first step to navigate these complexities and make informed choices.
I think having an investment advisor is the way to go. I've been with one because I lack the expertise for the market. I made over $490K during the recent dip, highlighting that there's more to the market than we average folks know.
Sure that's the Belgium's tax rate but you're forgetting to include that social services are included in that tax rate and they don't have state income tax. Here is an example for your same calculations if we live in the state of Oregon. 10.74% effective federal tax, 9.1% State income tax, 6.2% Social security tax and 1.1% medicare tax. So a resident making that amount of money in the state of Oregon would pay in excess of 27% tax on their income and then pay another couple of hundred a month at least for private health insurance in the end we pay WAY MORE taxes than people in Belgium compared to what we actually get back from the government. PS. I wish we could exempt ourselves from social security tax and Medicare tax but we can't so you should add it in there.
Funny how they didn't talk about capital gains in this video... Which is how most of rich people actually earn their money. Those tax rates are way lower.
You don't want high capital gains taxes. Capital gains is a main driver of the economy and is why most people invest in something, start a business, or be an entrepreneur. A lot of that would dry up if it was taxed like regular income.
@@Josh-179 Common republican myth... Many, even most, people who start their own business never see the type of capital gains that we're talking about. Both of my parents owned small businesses, neither we millionaires or paid in stocks. Most "entrepreneurs" in this country operate similarly- childcare providers, plumbers, carpenters, lawn maintainers... These businesses are rarely structured to award stocks in lieu of wages to their owner/operators. People like myself are motivated to start a business not for the attractive tax rates, but to build something of our own. To put the work in for yourself, not the boss. That said, it is possible to write policy that demotivates business ownership, but simply adjusting the way the wealth of the uber-rich is assessed isn't automatically going to end all small business.
Capital gain increase would affect people of every income bracket who have a retirement. Not everyone is paid in capital gains but a majority of Americans have retirement funds
At 4:00, the chart is to be read sequentially, if I'm understanding this right. The first $9,525 is taxed at 10%, the next $9,526 to $38,700 is taxed at 12%, and so on and so on. I just wanna make sure I'm getting it. Also, how were the deductibles calculated?
Greetings from Belgium where income tax is indeed that high. Minor edit: rates for the 2019 fiscal year: 0€ -> 12 990€ = 25% 12 990€ -> 22 290€ = 40% 22 290€ -> 39 660€ = 45% 39 660€ -> beyond = 50% (39 660€ ~ 44 000$) In addition most goods and services have a value-added tax of 21% Oh and there's also a flat income tax with rates that vary depending on the city in which you live. Keep up the good work, your content is great!
You asked so I'll answer. NO this tax system does not encourage laziness or not wanting to make more money. Okay yeah I would have to pay more taxes but I wouldn't have to worry about buying food, gas, paying rent, or my light bill. Thats some bullshit. No one wants to be poor
Been binge watching Two Cents for a few weeks now, I've learned more from their videos than I have from any high school class or wanna be finance guru. Love the content and the explanations, graphics and examples are great tools that help me stay along the path of learning something new without getting lost thank you so much!
Yes. You dont pay much taxes in the US compared to other countries but you don't get health care, child day care or higher education which is covered by any developed country. Not worth the tax break in my opinion.
Public school failed me and numerous other students when it came to learning about finances. You would think there would be a class or some type of program that involves the youth to prepare them for you know...life.
I don’t mind paying taxes. I just mind having to take hours of my time to file complicated tax returns in order to do it. The IRS should do this for us, plain and simple.
I agree and other countries already do the taxes free of charge for their ppl since they already have all the information. But that would mean private companies like HR Block, turbo tax etc. would go out of business so of course they spend millions in lobbying against this *sigh*
Wow, what a video. I live in Sweden and we are the best in the world at collecting taxes. Declaring here only takes 5 minutes because the government does all the leg work for us. We have progressive taxes because it is the best and the most fair! Those who earn the most have most left in the wallet, of course! They also have the best opportunities to contribute to everyone's common welfare and thus pay the most in taxes. Also, the money is much more evenly distributed to the people. Healthcare, education, etc. is free for everyone, no matter how much you (or your parents) earn. Go Sweden!
Same with Israel. You don't spend any time on taxes at all. The employer pays it automatically and self-employed/unemployed people are just signed into a system where the government deals with the banks automatically or as a business you have a person that does it all for you.
Yes you pay less tax in the United States than most of the Nordic counties (Denmark as given in the example) but your social systems are way behind these countries. They pay higher tax but have free health care, education, child care and many more systems. These countries are consistently among the 'happiest' countries in the world.
Great video! The complexity comes from having non-standard taxes, for the most part. If all you did was work as an employee and file with your W2s, it would be simple. It gets WAY more complex when you add anything like: -Working for yourself (if you earn more than $400 doing something on the side, you have to file that in as self-employed income) -Investments of any kind -Living/working abroad -Benefits of any kind -Deductions of any kind ...or any other non-standard circumstances. It takes me hours to do my taxes each year, because I need to make sure I'm filling out all the paperwork correctly and submitting everything necessary for my specific circumstances. This video is a great primer to the US tax system, and I especially like how you hit on the fact that tax brackets are marginal. That's an important point to understand.
One thing I like about the system in Sweden, Skatteverket (aka IRS) do the counting for you, all you have to do is read the details (only a few pages long) and sign - Done!
Thanks for clarifying! I was recently told that if I made even one dollar too much, I would be put in a higher tax bracket and make less net income than if I earned one dollar less and fell into a lower tax bracket!
You should do a video on everything we get for our taxes versus how much more other countries get with their taxes. This is only a slice of the whole story.
Hey, we got progressive income taxing Norway as well, yet I get my tax code prefilled. I don't even have to send it back if it is correct. If there are any additional deductibles I fill them in online and thats about it. No papers. If I had to fill it out on my own from scratch, I am sure I would have used 13 hours myself 😅
You have to subtract out the part of your income that has already been taxed at 10% - which is $9,175. The *_next_* $29,175 gets taxed at 12%, which is the amount from $9,176 to $38,700. What you are doing is basically taxing the first $9,175 at 10% and then taxing it all again at 12%.
You guys explained this way better than in my high school economics class. Wish I watched this before I filed my taxes to understand how everything worked
Lmao! 🤣🤣😂how does one not question the validity of this video if they can’t even get simple math correct? 🤷🏽♀️ but leave it to the masses to run with missing information as facts 💯🤦🏽♀️
Thanks for making that comment about how a progressive tax bracket can help offset the sales tax, I literally changed my opinion on opposing progressive taxes. Although, I'd be totally okay with abolishing property and sales tax and only taxing income.
Where I live we have a 6% sales tax and another 6.5% "prepared foods" tax on top of that. If you're poor and spend every dollar you earn (most impoverished people have no savings), your effective tax rate falls between 16% and 22% as a result. Talk about regressive!
I am not sure if there was an issue with the audio recording or the delivery, but Phillip was easy to hear while Julia was sometimes difficult. I usually do not have a problem with your videos and love the content.
Thank you for your explanations on the US tax system. I thought our Canadian system was complicated, however your efforts have further clarified this topic for me.
I fail to see how progressive taxes disincentivize higher incomes. Whether it's taxed or not, you still get more than if you stayed at a lower bracket.
pawala I know someone that works at a hotel and is also self-employed. Her salary from the hotel was low enough to get her Medi-Cal (medical In California at almost no cost), but she keeps her income from her side business low enough for her to keep her benefits. So if she can only make up to $40,000 in order to keep her benefits, the hotel salary is $30,000 and she can only make about $9,000 from her side business. I know this example wasn’t about the tax bracket, but I imagine that it must be similar.
I could see if I was making $500,000 and was offered a $60,000 raise to put in a certain amount of extra work, that if I would only get $37,800 after taxes that I might just choose to take the extra free time.
*It made a ~little~ more sense back when Ronald Reagan was a millionaire movie star in California, where the top marginal tax bracket was like 90% or something. But now taxes are way lower, and it's undeniably just an unsustainable race to the bottom.*
@@DavidAWA That only applies to the top 1%. The average American barely makes up to $60,000 so that changing brackets barely affects the money they need to survive and be happy.
Great video but the math was wrong when you subtracted 60,000-13,200= 47,800...it’s 46,800.. so all the calculations done here was off lol, but other than that great vid
When people actually understand progressive tax rates it doesn't discourage them from earning more. What does is when certain help for lower income people has exact cut off numbers.
You should do a video on what Americans get for our tax dollars, comparing it to what other countries get (i.e. Canada, the Netherlands, etc.) Healthcare, education, social services, easy access to business loans, etc.
I like this video. I like a lot of your videos, my one gripe is the line about our tax system being complicated because incomes are taxed at different rates. From a brief search the same seems to be true for Japan, which is a country you cite as having a much simpler tax system.
Why do some CEOs take $1 salaries? Is it to avoid taxes? Not too sure but I think I read somewhere that they (CEOs) take most of their money through dividends and taxes on dividends are low. Kindly shine more light on this for me or better yet make a video on it 😁. Explaining the rational behind the $1 salaried CEO.
This is an important video. I hate it when people say "why would I want to be rich if I'm taxed at 70% and I really don't get to keep anything?" Yeah, they have no idea that only a portion of their income would be taxed at the highest rate. I support a progressive tax system because, it might not be fair, but it's just. Nobody truly needs more than a 1/4 million dollars per year, do they? Not really. Taxing everything above that at 70% or even 90% doesn't spur laziness. Why would anyone just give up making more when they hit six figures just because they will be taxed slightly more? I'm no psychologist, but I don't see anybody voluntarily making less than $9,000 per year just to be taxed as little as possible. I myself would rather make $100,000 taxed at 50% than $9,000 taxed at 10%. You know why? Because keeping $50,000 is better than keeping $8100, even if I was taxed more.
Other tax details few people are aware of, in increasing order of how much you'll be ticked off ... Our tax rates aren't fully progressive due to payroll taxes. At about $133k, the effective tax rate *drops* by 6.2% since social security payroll taxes aren't charged on income above $133k. Payroll taxes weren't shown in the tax brackets presented in the video, but they should have been included to highlight this issue and highlight that the actual tax rate of someone making $60k is really about $18%, not 10.7%. Investment returns, which is how most of the uber rich make most of their money, are taxed at a lower rate than what many people pay for income they get for, ya know, working. Additionally, investment income is *not* subject to payroll taxes, so think of investment income as getting an automatic 6.2% social security + 1.45% Medicare = 7.65% tax break. So the lesson: be rich, sit on your but, and make tons of money. Real estate loopholes are where the real savings lie. If you own a property and charge rent, that rent is income, but the property "depreciates" at a substantial rate, meaning the property owner can often write off most if not all of the rental income due to this depreciation. That is, if I buy a $300k property and charge $2000 per month in rent, I make $24k -- but I'm not taxed on $24k. Instead, I get to subtract my mortgage interest (probably ~$10k) as well as up to 3.6% of the property value for the first ~27 years of ownership (so about $11k each year), which means ... for my $24k in income, I'm taxed on $3k. Real estate, part 2. Yeah yeah, but the property owner will be *eventually* taxed, right? Not necessarily. While the owner could deduct "depreciation" from the income for the property, that property was *actually* appreciating in value. So let's say they sell the property after 15 years for $500k. At that point, they would be taxed on the $200k profit from the sale plus about $175k in "depreciation" that they used in tax offsets. But they probably won't. If they reinvest that $375k back into another property within a couple months, they call it a "wash" sale and postpone paying those taxes until they sell that newly purchased property. And guess what ... they can keep doing this indefinitely. These special real estate loopholes allow property owners to avoid paying almost any taxes *ever* on their income. They defer forever. So you might be guessing: these super rich real estate tycoons' property is finally taxed at death, right? LOL, you are way too optimistic! When someone dies, their estate doesn't pay capital gains / investment taxes. They are effectively forgiven. CURRENTLY the people who inherit the property will be taxed if their inheritance is more than $11.4 million (per person). Oh, and it's of course easy for them to lowball the actual value of the property to also dodge this tax ("that $40m apartment building? uh... I think it's worth $10 million. oh, that means I don't have to pay any tax? how convenient!"). But at least those estate taxes are here to stay, right? For real, where do you get this optimism??? Republicans have dubbed the estate tax the "death tax" as a way to market it as something evil. They've been trying to repeal the estate tax for decades. If they're successful, then families running real estate businesses can defer taxes forever, and pass their millions, or even billions, of dollars in property down through the family without ever with an effective tax rate of perhaps 3-5%. Have I ruined your day?
@@MarekBush21 For sure, take advantage of what you can, but also recognize the uber rich are screwing even the small real estate players since you won't have access to the same efficiency and number of tricks as them. Good luck.
Can't live life looking to blame others. There are a lot of people who have more privilege than me right now. There are a lot of people you and I have more privilege than. Doesn't inherently mean we're doing something wrong to people with less. The government encourages certain behaviors with tax breaks because things like starting a business and developing, creates jobs and places for people to live. This stimulates the economy. So again, jump in the game and play rather than focusing on things you cant control.
@@MarekBush21 I am confused why you think owning a rental property "creates jobs" or creates more economic value than someone who's actually doing work. Renting out property also doesn't create any more economic value than a homeowner, who also has to maintain the property by hiring people to do work on it. But hey, you're entitled to your opinion that cronyism and lobbying is cool and good for the economy, and I also enjoy having my own opinion that handouts to the rich are bad economic policy and reflect a market inefficiency.
@@dosadoodle you can see how being a homeowner might require one to bring in a handyman from time to time but you dont understand how being a landlord who owns 15 properties creates jobs for painters, plumbers, maintenance men, carpet installers, cleaners and the like in between renters? You also conveniently ignored all the jobs a new business creates? Either way I choose to focus on what I can control.
So with a completely reductionist view, yes I would agree our progressive income tax system penalizes wealth. What is often missed and not discussed is the holistic view or as Paul Harvey would say - The rest of the story! Truth is our system is a combination of regressive, proportional, and progressive. These all have different limit and have been structured in such a confusing way to keep us arguing rather than looking at the overall outcomes. For example. FICA (or social security) is believed to only be 6.2%. That’s because the other 6.2% is hidden in taxes your employer pays on your behalf. Effectively if they did not take that tax you would be paid an additional 6.2% of your income. Now the problem is this tax is phased out entirely after $132,900. This means that the US govt is effectively reducing your tax rate taken by the government above that by 12.4%. The progressive tax only tries to make up that gap. What’s worse is the fact that law makers have sided with investors and corporations with the twisted idea that somehow 6.2% of the 12.4% saved after $132,900 should be paid and paid back to the company/investor rather than the employee. The difference is literally made up in the remaining progressive brackets. This literally is forced trickle down economics. Or better put forced income redistribution from the less wealthy to the more wealthy. What’s worse is the sales tax then well overcomes the amount in taxes paid in its truly regressive style. This is how we get situations where Warren Buffet pays less tax in not only %, but real $, than his secretary. This system has been made so confusing on purpose in order to keep us divided and angry at each other. In this we are not actually looking at the rules. Instead we are presented with plan A, in which those who have money win, and plan B, which those who have money will win also. Now just for context, I would like to point out that I am not even soliciting we change the rules or that the rules are unfair. I’m currently winning big with these rules. And it has been my experience that regardless of the rule set, those who know the rules the best, have the best chance of winning the game. And if you doubt me, think of your own household game nights, who traditionally wins (not exclusively, but say most of the time)? I’d bet they have the best if not one of the best, core understanding’s of the rules at that table.
The 22% tax bracket is a wide income range. Frankly 38k and 82k difference in certain areas, particularly NY or NC makes a HUGE difference. A single person living on 38k in Raleigh NC for example has a lot less disposable income than someone making 82k there. Same for 38/82 in NY, especially in the city, 38k in NYC has to be borderline poverty level and I know some people making 60k in NYC barely getting by each month.
In my opinion I would rather have a set rate percentage tax. I have middle income parents where they can’t even use their taxes for government programs. We don’t get FASFA, medical care insurance, Tuition Assistance etc. Yet, the government says if I get pregnant and have a lot of children under 24 I can qualify as a independent. I do know people who take advantage of the system. I want to know how I can prepare myself with knowing what is a Tax Credit and Tax Deductible. There are others in saying their are loopholes which I want to learn.
The one thing that wasn't mentioned about the countries that have a higher tax rate is that they're often getting more in return for the taxes they pay.
where did the $29,275 number come from? I get the first number of $9,525 in the first column is taxed at 10 percent. What I don't get is the second column. Where does the 29,275 come from?
The problem isn’t the income tax, it’s corporate taxes. Corporations worth billions of dollars routinely single digit or no taxes each year. Absolutely insane.
Very good video explaining a complicated subject. Now explain investments and the definitions of terms in the financial industry. Like how the word dividend means different things depending on what product you are talking about. Is it a profit sharing? Is is an interest payment on a loan paid to the bond holder or is it a refund of excess premium for over paying for insurance? It's all three... No really the financial industry is really interesting and can be confusing but getting it wrong means you're going to suffer when you're old.
In the government's point of view, it is probably less about being fair and more about how much they can squeeze out of every tax payer without upsetting them. That said, it is true USA tax rate for middle class income earners are lower than most (if not all) developed countries. It is also true that the filling tax, at least for me, is a very lengthy process. Takes me a few weekends to complete. I'm sure you're gonna cover this soon. Tax deduction. USA has many good areas to deduct tax, it is actually very friendly to wealthy people or should I say people in pursuit to be wealthy.
*I have mixed feelings about this video. On the one hand, it really does seem like almost everyone in the U.S. somehow misunderstands what a marginal tax bracket actually is, so it's really important to debunk that misconception. On the other hand, it's a fairly simple concept to grasp, and you could still file your tax return in 15 minutes if that were the only complication. The real fun starts when you start talking about deductions, credits, different classes of income, what options you even have to file, etc.* *And Trump was musing last week about indexing capital gains to inflation. What a regressive, system-complicating tax cut that would've been!*
I live in one of the states that have a proportional state income tax. It seems more fair to me and works well for the state. It’s much easier to figure out taxes. I’m in favor of the proportional tax rate.
I love that you explain complicated things simply, but you don't talk down to your audience. You find a great balance.
Awww thank you!
@Two Cents Where did the $13,200 go to? 3:41
@@manujohn99 the government gives you that amount as a deduction that doesn't need to be taxed which is why the effective rate was 10.74% even though the weighted average would have been higher if all money was actually taxed.
So do your own video.
@@ErrorPagenotFound-ig1cy what's your problem lmao
You should do a video on common tax deductions and tax credits. Like the standard deduction, child tax credit, etc.
The hard part about that is that (as we found out in 2018) lawmakers CHANGE IT !! Hahaha. It's hard to make a video that's got some long-term life to it. But we'll add it to our list!
It does significantly change the effective tax rate though. Those in lower income brackets often don’t make use of the deductions they could have. High earners make use of most of them. On top of that, the highest earners find ways to have income that is taxed even lower, like capital gains tax. So “discouraging wealth” is not really a concern in reality.
Yorick de Visser lol
This would have been a better direction for the video. The US tax code isn't complicated due to the progressive tax system. It is because of all the numerous deductions and credits.
@@TwoCentsPBS You do it every time it changes.... Every time you get new views for a new video.. Win-Win
Some people think it’s better to avoid a raise so they don’t enter the next tax bracket ...
But they don’t realize that it’s incremental!
Good clarity 👍
This ignorance is good to capitalize on and discredit policies that would tax the VERY rich. Top marginal tax rate was 91% in 1950s.
@@super8mate actual marginal rate was in the 70% after loopholes and deductibles for that time period.
That's what I thought DX I went for the raise anyways XD
Some government programs are linked to what tax bracket you're in, such as child care. Once you're $1 over, you don't qualify.
35% tax on $1 is mere 35 cents.
Boring channel: please don't argue in the comment section
Two Cents: WE WANT BLOOD AND TEARS
Whelp. Fierce discussions with a fair amount of respect can give you interesting new perspectives. why not encourage that^^
The richer you are, the more available tax deductions are to you, as well as more expensive tax professionals to help you find ways to save on taxes. Also, the reason why our tax system is one of the most complex is NOT because we have a progressive tax system!!! Not even remotely. It's about the format, countless loopholes, and (most importantly) the fact that each citizen has to completely figure out and submit our taxes then the government checks it over for mistakes. While in other countries, it's the exact opposite!! The government files everyone's taxes and submits them to each citizen, where they may look over it and see if there are any additional income sources or deductions that were missed
Mr. Sharp a simple tax without doubt will be better for tax collection and the economy, now the rich pay a lot to avoid taxes because there is a lot to be gained a simple tax code will be better for everyone and it would make the economy for efficient (because of less deadweight).
We need a simple tax code not the government to do our taxes
@@vicenteyanez671 but that's how many other 1st world countries make their tax system simpler. In my opinion, it's best to not try and reinvent the wheel. There is a lot we can learn from other countries. But neither of our ideas will ever be put into action with in the near future because there are literal thousands of companies that lobby against because they profit so much off of our confusion
Mr. Sharp you are definitely right, its very unlikely the tax code will ever be reformed, too many god damn lobbyists, and most people don’t even care.
Ricker
@@fallenafterling4128 thanks. The deed has been done
At 1:10: One of the main reason why taxes are so complicated to file in the US is because Intuit (makers of TurboTax) have lobbied against simplified filling for decades.
it took me 30 mins to do my taxes this year, maybe you're just an idiot
@@aakksshhaayy Let's give them the benefit of the doubt and assume that their taxes may be more complex than some.
@@OGBhyve i dunno 3 or 4 of my colleagues, same jobs.. dont even buy stocks or anything, use tax preparers. Some people are really just dense or have been told repeatedly "taxes are hard".
@@OGBhyve also.. if someone's taxes really are just plain complicated, TurboTax not lobbying or whatever is not going to change that.
@@aakksshhaayy In most countries the IRS does it for you and hands you the paperwork in case you have any complaints about something they forgot. The US could basically already do this.
why In the hell werent we taught this in school, this is making me extremely angry
I would say 60% of things that were taught in high school are completely useless as an adult
60% is a generous number
Yep. The whole education system is broken.
@@modernalchemist2690 Amen xD
Dave, we didn’t learn much but we damn sure learned the Pythagorean theorem.
Agreed. In US high school I was getting As and Bs. Went to Community College and everything I learned in high school was useless. It is in College that you may learn something if you take the right classes. My advice take economics and tax preparation classes. In the tax preparation class you find out that your 401k reduces your earned income based on how much you contribute. If you are dirt poor you can qualify for the earn income credit. You can deduct your gambling losses and you get my drift.
congrats on the baby
Hola
I think the main problem with the United States tax system (that I think most of us can agree on) is that it’s not used correctly by the government to fund public service adequately enough 🤷🏽♀️
Abso-fucking-lutely!
The government is too big. It needs to stop "helping" us because it fucks up EVERY time
Kinda crazy how wasteful the U.S. government can be with tax dollars.
The welfare system in the United States is currently considered an imbalanced and flawed system, yet hundreds of billions of dollars are poured into it every year
its not going to the bare essentials, which is what tax money should only be used for. (roads, bridges, parks, etc.)
The system of tax brackets isn't that complicated - it's the tangle of tax deductions and tax credits (plus the other categories of taxed wealth, like capital gains, dividends, inheritance, etc.) that confuses people. I think we'd all love to see a video about that!
+
jsteele07189 I didn’t understand a single phrase in the second clause of your sentence. Hope Two Cents sees this and makes this video-god knows my school would never teach personal finance/taxes.
Belgian here. It's true, our taxes are huge and we are only talking about income tax in this video. You'd be amazed at the plethora of all other tax rates we pay here!
But I assume you guys have way more services than we do, higher quality of services, and better quality of life as well.
@@JPWRana that is true but there are caveats. Politicians are frequently openly caught directly profiting of public money but more importantly: our services are good but people also become very dependent of these same services and thus the government. Finally: with the huge wave of retirements and longer life spans, our deficits and debt are increasing rapidly and the whole system is crumbling under its weight. New taxes are very unpopular as well as cutting in government expenses Both are very hard to defend in the climate of the ridiculously high tax rates we currently have.
@@pallas100 Do you have wealthy people in your country? Or is there no such thing
India also has progressive tax and we were taught this tax calculation in 10th grade, disguised as mathematics. And I feel thankful to my education system for doing one thing right in my education.
In the US we have people who think math is useless and should be removed but then complain that schools here don't teach about taxes...
No we are not. Your state or school board might but it's not common at all.
@Zac2241 No we don't, why do you lie like that?
Only criticism is the usage of the word "fair", a morally loaded term, when talking about proportional taxation. "Fairness" can be argued for any type of taxation as "fairness" is a subjective term, not so much an objective analysis.
@Traplover, That's their WHOLE point of using that word. We're taught that word in early childhood under terms synonymous with "equality" and "just" and now we expect adults to somehow have a different moral definition of the word. Not saying your criticism is wrong, but it's incredibly/unrealistically wishful. You're dealing with people's money, political views and emotions all in one topic. So yeah, the word "fair" is absolutely valid in this conversation/topic.
True,A lot of people confuse the word fair with the word equal.
@@Everydayprojects365 Isn't the worst thing, that sometimes fair is equal too. The thing is that there are people who want unfair because they are in the better position, in terms of tax that is.
MorgurEdits yea like if one works more hours and gets more money it’s both fair and equal lol this is true.we need more education in this country period.
There is no such thing a the fair share of someone else's income.
*GREAT VIDEO GUYS* | Yes, our tax system is complicated, but that’s partly due to the government wanting to push or incentivize certain types of activities such as rental properties, self-employed businesses, depreciating assets, etc. BUT we do end up taxing higher earners a lot more than we tax lower-income earners when factoring in deductions. VERY SIMPLE AND GOOD EXPLANATION! 😎👍🏻
We do but that's to stimulate the economy. Poor people spend majority of their income. Rich people tend to save more. It the most basic terms.
Some numbers to think about (as of 2020):
The top 50 percent of all taxpayers paid 97.7 percent of all federal individual income taxes, while the bottom 50 percent paid the remaining 2.3 percent.
The top 1 percent in America paid 42.3 percent of all income taxes in the country.
Is that fair?
I'm not North American and I really need to learn more about finances in my country. But I can't help myself...I have to watch all your videos. 🙈
Same!
Great video. I think we are overlooking the biggest strength this video had, however. This man's mustache deserves a prize.
Personally, I don't mind having to pay taxes, I've always held the mantra of 'Taxation is the price you pay for living in a civilized society.' Greetings from the UK! Really enjoy the insight into life in the USA that your videos give!
Just tell me how much taxes I owe and bill me. Don't make me have to figure it out.
That would be the worst system... you will never know how to increase your income....
Agreed. They have all of last year's info (for most of us) just adjust what is needed, send me an "invoice" and I can pay it.
Abdul . Work more and make more. Not sure how you would need to know how much you can make, unless you are a means tested program that would take benefits away for doing better.
Disclaimer: I support a #FreedomDividend or UBI yang2020.com
Abdul Hameed Send a tax receipt
@@Brian-tc7ii I meant increasing income from other investments, which I bet are taxed at different rates in USA... Btw I'm not an American
It has been proposed several times in the past, but was quickly shot down thanks to aggressive lobbying from tax prep companies like H&R Block and Turbo Tax
My taxes should be processed by the government, and I should only have to do any work if I notice a problem or need to apply for special tax breaks. That's how a lot of other counties do it. Let's stop being backward and wasting time/money. Come on, people!
would it surprise you to know companies like turbotax and H&R Block have lobbyists that want to keep the tax system complicated because it gives a reason for their software company to exist. If taxes became easy tomorrow, turbotax would go out of business.
@@wetokebitcoins1769 Extremely costly externalities, classic case of market failure and corruption. Thanks for pointing that out
That's true, unfortunately. The Lobby-firms for tax-softwares have a vested interested in keeping it complicated :(
@@wetokebitcoins1769 I don't know why. We still have H&R Block IN Australia, and my return takes 5.minutes.
They would just have to.move into the financial planning spaces rather than just filing paperwork.
@@WilliamHornstra H&R block does a lot of companies accounting and Payroll duties.
Love your show guys. I learn a lot I wish you would post more videos.
Awwww thanks! That's a huge compliment.
@@TwoCentsPBS you don't have to thank me its the truth. Please do more videos I am a huge suporter throug lh everything you do.
Hey guys you gave me your 2 cents, I gave you a penny for your thoughts
Many people don't realize that if they earn $5,000 in the 25% tax bracket, only that $5,000 is taxed at 25% 🤷♂️
That is literally what the video says. Watch the video.
Tax laws can be so complex, and it’s super helpful to break them down like this. Understanding how different policies can impact our finances is crucial for making informed decisions.
Making profitable investments during this time of political change can be risky without that insight. For me, working with an adviser is the best first step to navigate these complexities and make informed choices.
I think having an investment advisor is the way to go. I've been with one because I lack the expertise for the market. I made over $490K during the recent dip, highlighting that there's more to the market than we average folks know.
Hmmm this is quite interesting, Please can you leave the info of your investment advisor here? I’m in dire need for one.
Nicole Anastasia Plumlee can't divulge much. Most likely, the internet should have her basic info, you can research if you like.
I just googled her and I'm really impressed with her credentials; I reached out to her since I need all the assistance I can get.
Sure that's the Belgium's tax rate but you're forgetting to include that social services are included in that tax rate and they don't have state income tax. Here is an example for your same calculations if we live in the state of Oregon. 10.74% effective federal tax, 9.1% State income tax, 6.2% Social security tax and 1.1% medicare tax. So a resident making that amount of money in the state of Oregon would pay in excess of 27% tax on their income and then pay another couple of hundred a month at least for private health insurance in the end we pay WAY MORE taxes than people in Belgium compared to what we actually get back from the government.
PS. I wish we could exempt ourselves from social security tax and Medicare tax but we can't so you should add it in there.
Great video
Very informative and simplified.
TThank you!!
Funny how they didn't talk about capital gains in this video... Which is how most of rich people actually earn their money. Those tax rates are way lower.
20
You don't want high capital gains taxes. Capital gains is a main driver of the economy and is why most people invest in something, start a business, or be an entrepreneur. A lot of that would dry up if it was taxed like regular income.
@@Josh-179 Common republican myth... Many, even most, people who start their own business never see the type of capital gains that we're talking about. Both of my parents owned small businesses, neither we millionaires or paid in stocks. Most "entrepreneurs" in this country operate similarly- childcare providers, plumbers, carpenters, lawn maintainers... These businesses are rarely structured to award stocks in lieu of wages to their owner/operators.
People like myself are motivated to start a business not for the attractive tax rates, but to build something of our own. To put the work in for yourself, not the boss. That said, it is possible to write policy that demotivates business ownership, but simply adjusting the way the wealth of the uber-rich is assessed isn't automatically going to end all small business.
Capital gain increase would affect people of every income bracket who have a retirement. Not everyone is paid in capital gains but a majority of Americans have retirement funds
I’ve never had this explained to me before! Thank you for educating me.
At 4:00, the chart is to be read sequentially, if I'm understanding this right. The first $9,525 is taxed at 10%, the next $9,526 to $38,700 is taxed at 12%, and so on and so on. I just wanna make sure I'm getting it.
Also, how were the deductibles calculated?
Yep you got it! Can't help with the second part.
Yes, you are getting it. Not sure where they got $13,200 in deductions from. The standard deduction for a single person in 2019 is $12,200.
Greetings from Belgium where income tax is indeed that high.
Minor edit: rates for the 2019 fiscal year:
0€ -> 12 990€ = 25%
12 990€ -> 22 290€ = 40%
22 290€ -> 39 660€ = 45%
39 660€ -> beyond = 50%
(39 660€ ~ 44 000$)
In addition most goods and services have a value-added tax of 21%
Oh and there's also a flat income tax with rates that vary depending on the city in which you live.
Keep up the good work, your content is great!
Don’t even get me started on California’s personal income tax
Off topic - did anyone else notice the 60k-13.2k=47.8k mistake at 3:45? Shouldn't it be 46.8k or am I missing something here?
yes! i started reading through the comments to make sure im not missing something.
Thank you yet again for another high quality content video! That’s my 1 cent!
The explanation makes sense. Other countries pay more in taxes because important resources are little to no cost like healthcare and schooling.
You asked so I'll answer. NO this tax system does not encourage laziness or not wanting to make more money. Okay yeah I would have to pay more taxes but I wouldn't have to worry about buying food, gas, paying rent, or my light bill. Thats some bullshit. No one wants to be poor
Taxes are made confusing on purpose 😂👎
Which makes Indian tax-scammers more successful. ¬_¬
It’s not giving my money to the government, it’s giving my money to government employees. Let’s make it personal.
Been binge watching Two Cents for a few weeks now, I've learned more from their videos than I have from any high school class or wanna be finance guru. Love the content and the explanations, graphics and examples are great tools that help me stay along the path of learning something new without getting lost thank you so much!
Yes. You dont pay much taxes in the US compared to other countries but you don't get health care, child day care or higher education which is covered by any developed country. Not worth the tax break in my opinion.
I really appreciate you didn’t try to steer anyone towards anyone tax system.
“After taking your available deductions” (min 3:40)...what do you mean by that? 🤔
Public school failed me and numerous other students when it came to learning about finances. You would think there would be a class or some type of program that involves the youth to prepare them for you know...life.
US tax system: Uses stepwise function to determine tax rates.
Isaac Newton: Did you not read the book I wrote for you?
Gottfried Leibniz: *coughs*
I like to think of myself as a smart person, and I only found this out 10 minutes ago. This is really important to teach in schools.
This is my first time on this channel and my first thought was: that is the best mustache I’ve seen in the past year
I don’t mind paying taxes. I just mind having to take hours of my time to file complicated tax returns in order to do it. The IRS should do this for us, plain and simple.
Alright Adam ruins everything, chill
Why the hostility toward Stewart?
Ugh. SAME.
I agree and other countries already do the taxes free of charge for their ppl since they already have all the information. But that would mean private companies like HR Block, turbo tax etc. would go out of business so of course they spend millions in lobbying against this *sigh*
I'm still confused on how you got 29,175 for the bracket. Where did that number come from? Did you just pick a random number?
Wow, what a video. I live in Sweden and we are the best in the world at collecting taxes. Declaring here only takes 5 minutes because the government does all the leg work for us. We have progressive taxes because it is the best and the most fair! Those who earn the most have most left in the wallet, of course! They also have the best opportunities to contribute to everyone's common welfare and thus pay the most in taxes. Also, the money is much more evenly distributed to the people. Healthcare, education, etc. is free for everyone, no matter how much you (or your parents) earn.
Go Sweden!
Lolz. Jealous.
Same with Israel. You don't spend any time on taxes at all. The employer pays it automatically and self-employed/unemployed people are just signed into a system where the government deals with the banks automatically or as a business you have a person that does it all for you.
Oh my god....someone told the truth....I'm amazed right now...no spin....no BS....wow....good job!
A flat tax would cut the video down to 60 seconds
A progressive continuous function would do the same.
Plug in your income for x. Use a calculator. Boom.
Personally, I'd go for a logistic function.
Yes you pay less tax in the United States than most of the Nordic counties (Denmark as given in the example) but your social systems are way behind these countries. They pay higher tax but have free health care, education, child care and many more systems. These countries are consistently among the 'happiest' countries in the world.
You should move there and be happier then.
You both did a great job explaining this! Thank you!
Thank YOU!
Great video! The complexity comes from having non-standard taxes, for the most part. If all you did was work as an employee and file with your W2s, it would be simple. It gets WAY more complex when you add anything like:
-Working for yourself (if you earn more than $400 doing something on the side, you have to file that in as self-employed income)
-Investments of any kind
-Living/working abroad
-Benefits of any kind
-Deductions of any kind
...or any other non-standard circumstances. It takes me hours to do my taxes each year, because I need to make sure I'm filling out all the paperwork correctly and submitting everything necessary for my specific circumstances.
This video is a great primer to the US tax system, and I especially like how you hit on the fact that tax brackets are marginal. That's an important point to understand.
I was in Greece during part of their crisis, their sales tax was something like 24% or 26% and tax on food was 18%
One thing I like about the system in Sweden, Skatteverket (aka IRS) do the counting for you, all you have to do is read the details (only a few pages long) and sign - Done!
My government teacher literally taught us that getting a raise can sometimes lead to you getting less money if you got put into a new bracket... smh
Thanks for clarifying! I was recently told that if I made even one dollar too much, I would be put in a higher tax bracket and make less net income than if I earned one dollar less and fell into a lower tax bracket!
You should do a video on everything we get for our taxes versus how much more other countries get with their taxes. This is only a slice of the whole story.
Off topic, but you should definitely do a video on financial aid for college. Including the different kinds of loans and work study programs.
This video made it so easy to understand. Highly appreciated!
Hey, we got progressive income taxing Norway as well, yet I get my tax code prefilled. I don't even have to send it back if it is correct. If there are any additional deductibles I fill them in online and thats about it. No papers. If I had to fill it out on my own from scratch, I am sure I would have used 13 hours myself 😅
Charity should not be forced. If people want to help people, they have to make the decision.
4:00 I'm confused. Why would you only put $29,175 into the 12% bracket when that bracket goes up to $38,700? Where are you getting that number from?
You have to subtract out the part of your income that has already been taxed at 10% - which is $9,175. The *_next_* $29,175 gets taxed at 12%, which is the amount from $9,176 to $38,700. What you are doing is basically taxing the first $9,175 at 10% and then taxing it all again at 12%.
You guys explained this way better than in my high school economics class. Wish I watched this before I filed my taxes to understand how everything worked
60.000 - 13.200 = 47.800 ?
WOW
Lmao! 🤣🤣😂how does one not question the validity of this video if they can’t even get simple math correct? 🤷🏽♀️ but leave it to the masses to run with missing information as facts 💯🤦🏽♀️
Thanks for making that comment about how a progressive tax bracket can help offset the sales tax, I literally changed my opinion on opposing progressive taxes.
Although, I'd be totally okay with abolishing property and sales tax and only taxing income.
Where I live we have a 6% sales tax and another 6.5% "prepared foods" tax on top of that. If you're poor and spend every dollar you earn (most impoverished people have no savings), your effective tax rate falls between 16% and 22% as a result. Talk about regressive!
4:11 How's the 2nd bracket (12%) is 29,175 how'd you get the number?
The top of the 12% bracket minus top of the 10% bracket. So $38,700 - $9,525 = $29,175
I am not sure if there was an issue with the audio recording or the delivery, but Phillip was easy to hear while Julia was sometimes difficult. I usually do not have a problem with your videos and love the content.
Thank you for your explanations on the US tax system.
I thought our Canadian system was complicated,
however your efforts have further clarified this topic
for me.
I fail to see how progressive taxes disincentivize higher incomes.
Whether it's taxed or not, you still get more than if you stayed at a lower bracket.
pawala I know someone that works at a hotel and is also self-employed. Her salary from the hotel was low enough to get her Medi-Cal (medical In California at almost no cost), but she keeps her income from her side business low enough for her to keep her benefits. So if she can only make up to $40,000 in order to keep her benefits, the hotel salary is $30,000 and she can only make about $9,000 from her side business. I know this example wasn’t about the tax bracket, but I imagine that it must be similar.
Indio Hatuey I know. I said what you said at the end.
I could see if I was making $500,000 and was offered a $60,000 raise to put in a certain amount of extra work, that if I would only get $37,800 after taxes that I might just choose to take the extra free time.
*It made a ~little~ more sense back when Ronald Reagan was a millionaire movie star in California, where the top marginal tax bracket was like 90% or something. But now taxes are way lower, and it's undeniably just an unsustainable race to the bottom.*
@@DavidAWA That only applies to the top 1%. The average American barely makes up to $60,000 so that changing brackets barely affects the money they need to survive and be happy.
Great video but the math was wrong when you subtracted 60,000-13,200= 47,800...it’s 46,800.. so all the calculations done here was off lol, but other than that great vid
Austria (
per month):
€ 1.066,00 0 %
€ 1.516,00 25 %
€ 2.599,33 35 %
€ 5.016,00 42 %
€ 7.516,00 48 %
€ 83.349,33 50 %
more 55 %
When people actually understand progressive tax rates it doesn't discourage them from earning more. What does is when certain help for lower income people has exact cut off numbers.
Our system encourages laziness.
You should do a video on what Americans get for our tax dollars, comparing it to what other countries get (i.e. Canada, the Netherlands, etc.) Healthcare, education, social services, easy access to business loans, etc.
I like this video. I like a lot of your videos, my one gripe is the line about our tax system being complicated because incomes are taxed at different rates. From a brief search the same seems to be true for Japan, which is a country you cite as having a much simpler tax system.
Why do some CEOs take $1 salaries? Is it to avoid taxes? Not too sure but I think I read somewhere that they (CEOs) take most of their money through dividends and taxes on dividends are low. Kindly shine more light on this for me or better yet make a video on it 😁. Explaining the rational behind the $1 salaried CEO.
Great as always!
97 people don't want you to know about this. lol
Y’all are the best. Seriously.
This is an important video. I hate it when people say "why would I want to be rich if I'm taxed at 70% and I really don't get to keep anything?" Yeah, they have no idea that only a portion of their income would be taxed at the highest rate.
I support a progressive tax system because, it might not be fair, but it's just. Nobody truly needs more than a 1/4 million dollars per year, do they? Not really. Taxing everything above that at 70% or even 90% doesn't spur laziness. Why would anyone just give up making more when they hit six figures just because they will be taxed slightly more? I'm no psychologist, but I don't see anybody voluntarily making less than $9,000 per year just to be taxed as little as possible. I myself would rather make $100,000 taxed at 50% than $9,000 taxed at 10%. You know why? Because keeping $50,000 is better than keeping $8100, even if I was taxed more.
How did you get 29,175 in the second bracket and 9,100 in the 3rd
Other tax details few people are aware of, in increasing order of how much you'll be ticked off ...
Our tax rates aren't fully progressive due to payroll taxes. At about $133k, the effective tax rate *drops* by 6.2% since social security payroll taxes aren't charged on income above $133k. Payroll taxes weren't shown in the tax brackets presented in the video, but they should have been included to highlight this issue and highlight that the actual tax rate of someone making $60k is really about $18%, not 10.7%.
Investment returns, which is how most of the uber rich make most of their money, are taxed at a lower rate than what many people pay for income they get for, ya know, working. Additionally, investment income is *not* subject to payroll taxes, so think of investment income as getting an automatic 6.2% social security + 1.45% Medicare = 7.65% tax break. So the lesson: be rich, sit on your but, and make tons of money.
Real estate loopholes are where the real savings lie. If you own a property and charge rent, that rent is income, but the property "depreciates" at a substantial rate, meaning the property owner can often write off most if not all of the rental income due to this depreciation. That is, if I buy a $300k property and charge $2000 per month in rent, I make $24k -- but I'm not taxed on $24k. Instead, I get to subtract my mortgage interest (probably ~$10k) as well as up to 3.6% of the property value for the first ~27 years of ownership (so about $11k each year), which means ... for my $24k in income, I'm taxed on $3k.
Real estate, part 2. Yeah yeah, but the property owner will be *eventually* taxed, right? Not necessarily. While the owner could deduct "depreciation" from the income for the property, that property was *actually* appreciating in value. So let's say they sell the property after 15 years for $500k. At that point, they would be taxed on the $200k profit from the sale plus about $175k in "depreciation" that they used in tax offsets. But they probably won't. If they reinvest that $375k back into another property within a couple months, they call it a "wash" sale and postpone paying those taxes until they sell that newly purchased property. And guess what ... they can keep doing this indefinitely. These special real estate loopholes allow property owners to avoid paying almost any taxes *ever* on their income. They defer forever.
So you might be guessing: these super rich real estate tycoons' property is finally taxed at death, right? LOL, you are way too optimistic! When someone dies, their estate doesn't pay capital gains / investment taxes. They are effectively forgiven. CURRENTLY the people who inherit the property will be taxed if their inheritance is more than $11.4 million (per person). Oh, and it's of course easy for them to lowball the actual value of the property to also dodge this tax ("that $40m apartment building? uh... I think it's worth $10 million. oh, that means I don't have to pay any tax? how convenient!").
But at least those estate taxes are here to stay, right? For real, where do you get this optimism??? Republicans have dubbed the estate tax the "death tax" as a way to market it as something evil. They've been trying to repeal the estate tax for decades. If they're successful, then families running real estate businesses can defer taxes forever, and pass their millions, or even billions, of dollars in property down through the family without ever with an effective tax rate of perhaps 3-5%.
Have I ruined your day?
No, you've encouraged me to get into real estate. Learn the game and play.
@@MarekBush21 For sure, take advantage of what you can, but also recognize the uber rich are screwing even the small real estate players since you won't have access to the same efficiency and number of tricks as them. Good luck.
Can't live life looking to blame others. There are a lot of people who have more privilege than me right now. There are a lot of people you and I have more privilege than. Doesn't inherently mean we're doing something wrong to people with less. The government encourages certain behaviors with tax breaks because things like starting a business and developing, creates jobs and places for people to live. This stimulates the economy. So again, jump in the game and play rather than focusing on things you cant control.
@@MarekBush21 I am confused why you think owning a rental property "creates jobs" or creates more economic value than someone who's actually doing work. Renting out property also doesn't create any more economic value than a homeowner, who also has to maintain the property by hiring people to do work on it.
But hey, you're entitled to your opinion that cronyism and lobbying is cool and good for the economy, and I also enjoy having my own opinion that handouts to the rich are bad economic policy and reflect a market inefficiency.
@@dosadoodle you can see how being a homeowner might require one to bring in a handyman from time to time but you dont understand how being a landlord who owns 15 properties creates jobs for painters, plumbers, maintenance men, carpet installers, cleaners and the like in between renters? You also conveniently ignored all the jobs a new business creates? Either way I choose to focus on what I can control.
So with a completely reductionist view, yes I would agree our progressive income tax system penalizes wealth.
What is often missed and not discussed is the holistic view or as Paul Harvey would say - The rest of the story!
Truth is our system is a combination of regressive, proportional, and progressive. These all have different limit and have been structured in such a confusing way to keep us arguing rather than looking at the overall outcomes.
For example. FICA (or social security) is believed to only be 6.2%. That’s because the other 6.2% is hidden in taxes your employer pays on your behalf. Effectively if they did not take that tax you would be paid an additional 6.2% of your income. Now the problem is this tax is phased out entirely after $132,900.
This means that the US govt is effectively reducing your tax rate taken by the government above that by 12.4%. The progressive tax only tries to make up that gap.
What’s worse is the fact that law makers have sided with investors and corporations with the twisted idea that somehow 6.2% of the 12.4% saved after $132,900 should be paid and paid back to the company/investor rather than the employee. The difference is literally made up in the remaining progressive brackets. This literally is forced trickle down economics. Or better put forced income redistribution from the less wealthy to the more wealthy.
What’s worse is the sales tax then well overcomes the amount in taxes paid in its truly regressive style.
This is how we get situations where Warren Buffet pays less tax in not only %, but real $, than his secretary.
This system has been made so confusing on purpose in order to keep us divided and angry at each other. In this we are not actually looking at the rules. Instead we are presented with plan A, in which those who have money win, and plan B, which those who have money will win also.
Now just for context, I would like to point out that I am not even soliciting we change the rules or that the rules are unfair. I’m currently winning big with these rules. And it has been my experience that regardless of the rule set, those who know the rules the best, have the best chance of winning the game. And if you doubt me, think of your own household game nights, who traditionally wins (not exclusively, but say most of the time)? I’d bet they have the best if not one of the best, core understanding’s of the rules at that table.
The 22% tax bracket is a wide income range. Frankly 38k and 82k difference in certain areas, particularly NY or NC makes a HUGE difference. A single person living on 38k in Raleigh NC for example has a lot less disposable income than someone making 82k there. Same for 38/82 in NY, especially in the city, 38k in NYC has to be borderline poverty level and I know some people making 60k in NYC barely getting by each month.
This is why people are leaving these areas in record numbers. California is going broke.
In my opinion I would rather have a set rate percentage tax. I have middle income parents where they can’t even use their taxes for government programs. We don’t get FASFA, medical care insurance, Tuition Assistance etc. Yet, the government says if I get pregnant and have a lot of children under 24 I can qualify as a independent. I do know people who take advantage of the system. I want to know how I can prepare myself with knowing what is a Tax Credit and Tax Deductible. There are others in saying their are loopholes which I want to learn.
Flat tax and eliminate sales tax. Substitute a sugar tax or maybe even carbon footprint tax for green efforts.
The one thing that wasn't mentioned about the countries that have a higher tax rate is that they're often getting more in return for the taxes they pay.
where did the $29,275 number come from? I get the first number of $9,525 in the first column is taxed at 10 percent. What I don't get is the second column. Where does the 29,275 come from?
The problem isn’t the income tax, it’s corporate taxes. Corporations worth billions of dollars routinely single digit or no taxes each year.
Absolutely insane.
Very good video explaining a complicated subject. Now explain investments and the definitions of terms in the financial industry. Like how the word dividend means different things depending on what product you are talking about. Is it a profit sharing? Is is an interest payment on a loan paid to the bond holder or is it a refund of excess premium for over paying for insurance? It's all three... No really the financial industry is really interesting and can be confusing but getting it wrong means you're going to suffer when you're old.
In the government's point of view, it is probably less about being fair and more about how much they can squeeze out of every tax payer without upsetting them.
That said, it is true USA tax rate for middle class income earners are lower than most (if not all) developed countries.
It is also true that the filling tax, at least for me, is a very lengthy process. Takes me a few weekends to complete.
I'm sure you're gonna cover this soon. Tax deduction. USA has many good areas to deduct tax, it is actually very friendly to wealthy people or should I say people in pursuit to be wealthy.
*I have mixed feelings about this video. On the one hand, it really does seem like almost everyone in the U.S. somehow misunderstands what a marginal tax bracket actually is, so it's really important to debunk that misconception. On the other hand, it's a fairly simple concept to grasp, and you could still file your tax return in 15 minutes if that were the only complication. The real fun starts when you start talking about deductions, credits, different classes of income, what options you even have to file, etc.*
*And Trump was musing last week about indexing capital gains to inflation. What a regressive, system-complicating tax cut that would've been!*
I live in one of the states that have a proportional state income tax. It seems more fair to me and works well for the state. It’s much easier to figure out taxes. I’m in favor of the proportional tax rate.
This subject needs to be series on its own
Woohoo! I don't have a strong opinion but I want to boost your youtube metrics! Woo! Love you guys!
I learn so much from these videos ,thank you guys for taking your time making these videos
3:40 what do you mean with avaible deduction?
I agree. Changes your withholdings and invest or pay off debt with the extra money each month instead of getting a lump sum once a year.
great video!! thank you!!
The progressive tax is not "unfair" because money makes money.
It is a tax on that privilege.