Tax brackets and progressive taxation발음듣기
Tax brackets and progressive taxation
(lighthearted music) Voiceover: You'll hear the word "tax bracket" thrown around a lot, and there's often a misunderstanding of what a tax bracket is, so that's what we're going to do in this video.발음듣기
I'm going to do it in a very general, simple way that doesn't use the exact same tax code of any particular country, but most countries use some kind of a progressive tax system, that has some type of tax brackets.발음듣기
Let's say my country has a tax code that says between $0 of income and $10,000 of income you pay no taxes on it, and then between 10,000 and, let say, 50,000,발음듣기
let me write that a little bit neater, between 10,000 and 50,000, so that's 50,000 right over there, you pay 20% of your income, and then let's just say, this is very simple; much simpler than any actual tax codes out there;발음듣기
The reason why I say that there is confusion here is many people feel that if their income throws them into a bracket, that they pay 20% on all of their money, but that's not the way it works.발음듣기
Let's say that someone earns ... let's say income, and then let's think about how much taxes they will pay.발음듣기
They would pay 0% on the first $10,000, so it would be 0% x $10,000. x 10,000, and then the next 5,000, they're going to be right over here, the next 5,000 they're going to pay 20%.발음듣기
The misconception that many people have is, "Oh, $15,000 puts me into this middle bracket, "so I'm going to have to pay 20% on all $15,000," and that's not the way it works.발음듣기
It wouldn't be that they're in this last bracket, so they'd pay 30% on their entire $100,000.발음듣기
So, + 20% x the 40,000, and then they only pay 30% on the increment of their income that is above this $50,000 threshold.발음듣기
Is going to be $15,000. In this situation, the person will not pay 30% on the entire 100,000.발음듣기
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