Name: How Do Tax Brackets Actually Work?
Uploaded: 2020-06-02T14:10:19.000Z
Duration: 6 min 56 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

Basic passive voice

There are a few topics that are considered off-limits at my family's Thanksgiving table,

Adverbs of manner

and one of them is TAXES, or more specifically, the American tax SYSTEM.

Adverbs of degree

Virtually everyone has a strong opinion about it: It's unfair!

Cable news and social media are filled with passionate debates about it, but how many

people actually know how our current tax system works?

If your eyes glaze over when you hear phrases like “progressive taxation” and “marginal

Even some of our law-makers seem to have a shaky grip on the concept.

But if you hope to have a say in a system that impacts your wallet every day, you should

understand how—and why—it ended up this way.

Let's start with something all of us can agree on.

It's one of the most complicated systems in the world, taking the average citizen 13

Compare that to, say, Japan, where it's closer to 15 minutes.

And one reason we have such a confusing system is because our income is taxed at different

For nearly 100 years, our country had no income tax.

The first one was levied in 1861 during the civil war at a flat 3% tax on income over

$800.The next year, in 1862, the first “progressive tax bracket” appeared, with the 3% rate

AND a 5% rate for any income earned over $10,000.

Then in 1872, the income tax was repealed because — get this — the government no

Then in 1913 with the 16th Amendment, progressive taxes made a permanent come-back.

It gave the Federal government the free reign to tax workers' income in every state.

Well, you can think of tax systems coming in one of three main flavors.

Regressive, Proportional, or Progressive.

A regressive tax impacts lower paid workers more severely.

Paying sales tax on groceries or clothing will end up being a higher portion of a low-earner's

A worker earning $20,000 a year who pays $1,000 in sales tax will be parting with 5% of his income.

Another making $100,000 paying that same tax for the same goods will only be charged 1%

A simpler solution would be a proportional tax, where, simply put, everybody pays the

same percentage of their income, no matter how much they make.

Nine states currently impose a proportional,

That means no matter how much you make, your tax rate stays the same.

Finally there's the progressive tax, a system that has a heavier impact on high earners.

Low earners may end up paying little or nothing, with only the wealthiest people paying the

Through a series of different tax levels or “marginal tax brackets”.

Let's say you're a single person making $60,000/yr.

A quick look at the IRS Tax Brackets will tell you that you fall into the 22% bracket.

Do you have to give the government 22% of your income?

A common misconception is that entering a higher tax bracket means your whole income

After taking your available deductions, you're left with $47,800 in “Taxable income”.

As of 2019 we have 7 marginal tax brackets between 10 and 37%.

Each bracket along the way applies to one specific chunk of your income, not the whole thing.

Bracket 1 is for your first $9,525, and it gets taxed at 10%.

This applies to $29,175, and is taxed at a rate of 12%.

Last stop is Bracket 3, where your remaining income of $9,100 will be taxed at 22%.

Even though you're in the 22% tax bracket, your “effective tax rate” is only 10%,

thanks to the marginal rates in our progressive tax system.

So a single-filer with a taxable income of $500,001 may be in the highest tax-bracket

of 37%, but only $1.00 is taxed at that rate.

This system is definitely more complicated than a flat-tax.

A progressive tax system, by definition is unfair.

It allows lower earners to pay very little tax…

In fact more than 44% of Americans pay no federal income taxes.

And the more money you make, the less of it you will keep.

Opponents of progressive taxation tend to be higher earners, arguing that the system

“punishes” wealthy people, and actively discourages making a higher income.

They claim that a flat-tax would be simpler, easier, and more fair.

Supporters of a progressive tax, however, point to the real-world human impact on struggling

They argue that if people have a greater ability to pay, then they should pay more.

And a progressive tax system, they claim, can counteract the regressive nature of sales

taxes, easing the impact of taxes on your rent or groceries, while hitting you harder

in your ability to take vacations or buy luxury goods.

And while nobody loves paying taxes, the average US tax-payer actually pays less than almost

Compared to, say Belgium, we get off pretty easy.

Their lowest tax-bracket is 25%, and the highest is 50% for anything over 38,080 Euros!

Do you feel our progressive tax-system encourages laziness?

Does it discourage people from earning more money?

Or is it giving a leg-up to people with lower salaries?

Whatever your opinion, now that you understand the mechanics of marginal brackets and progressive

taxation, you'll be in a much better place to argue about it over your next Thanksgiving dinner.

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I'm sure you have an opinion about our current tax system, go ahead and put it in the comments,

or you could share it with your elected representative!