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In which John discusses the tax proposals of the two major candidates for President while arguing against the hysterical rhetoric that marks contemporary political discourse. This is the first of six consecutive daily videos Hank and I will be making to fulfill the first of our two outstanding punishments. Also discussed: the difference between ordinary income and capital gains, and the theory behind taxing capital gains at a lower rate than ordinary income (which both candidates favor, just to different degrees).


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John: Good morning, Hank, it's Sunday, we're doing a week of Brotherhood 2.0 style daily vlogs as a punishment, I want to talk today about tax policy, because that's a good way to get views on YouTube. But it is the best example I can think of to explore how far our political rhetoric has diverged from actual policy. Now, bear in mind that I'm not expert, I'm a guy sitting in his basement wearing a suit jacket, a button down shirt, and boxers. But okay, let's start with ordinary income, which is usually money that you make in a job, but it can be lots of other things, and anyway, ordinary income right now over 388,000 dollars, is taxed at 35%. President Obama's deficit reduction plan would cut taxes for most families but income of more than 388,000 dollars would be taxed at 39% instead of 35%, whereas Governor Romney's tax plan would cut that marginal tax rate to about 28%. Now this means nothing for the vast majority of us, but if you're married and you have one kid and make 500,000 a year, congratulations, that's fantastic. Under the Obama plan, you'll pay about 5,000 dollars more than you currently do, under the Romney plan, you'll pay about 36,000 dollars less than you currently do. Now, Hank, that's a significant difference, but look at it this way, Obama's tax plan would take tax rates to where they were in the 1990s. And Romney's tax plan would set tax rates about where they were in the late 1980s. So, Hank, when political pundits scream at each other on TV, it's basically one side saying this kind of radical socialism hasn't been seen in the United States for 12 entire years! And the other side's like, 'your handouts to the filthy rich are entirely unprecedented in all of American history provided that American history began in 1991.' So the differences are significant, but is one side communist and the other side fascist? No. Then, we have capital gains. So the foundational idea of industrial capitalism is that sometimes you have to make large upfront investments to grow the economy. You need to buy an oven to start your pizza business or a screen printer to start your t-shirt business or some servers to start your online video enterprise. If your investment works out, you make a lot of money, if it fails, you lose everything. Now, these investors who are willing to take risks are super useful to the economy, like, Hank, if you hadn't made a large upfront investment in VidCon, VidCon never would have existed, and that would suck because one, it's super fun, and two, it has created jobs. And the same thing is true, except on a much larger scale, with like, YouTube. So let's say that you start YouTube and then you sell it to Google. The money that you made from that sale is called 'capital gains' and it is taxed currently at 15%, much lower than the ordinary income tax rate. A similar thing is happening, albeit in a very extended way, when you buy stock in a company and then the value of that company grows and you sell the stock, that's also capital gains. So Hank, the idea here is that if we tax capital gains at a lower rate, it'll encourage entrepreneurship and investment. It'll encourage people who are working at PayPal making an ordinary income say, 'hmm, I should start YouTube and make me some capital gains.' Now, Hank, whether people actually start businesses in the hopes of being taxed at a slightly lower rate is an open question. Some economists think this fuels growth, others don't. But regardless, as you can see here from this game of snake, I mean, graph, the capital gains tax is at its lowest point since 1972. President Obama argues that we should raise that rate back up to 20% where it was between 1997 and 2002. Governor Romney wants to keep that 15% rate but completely eliminate all tax on capital gains under 250,000 dollars. Hank, importantly, that would also mean that people who make like a billion dollars in capital gains a year would still pay no taxes at all on their first 250,000 dollars in capital gains income. So, Hank, I think that's a bad idea, and I think that President Obama's plan is better, but I might be wrong. I've been wrong before. The truth is, these are somewhat different tax plans, but neither of them is radical. And Hank, when we start to imagine those who disagree with us as 'crazy' or 'evil' or 'traitorous', it becomes difficult to compromise with them and difficult to listen to them, at times, it can be even difficult to stay friends with them. And hurtling insults instead of having conversations about policy leads to a social order where no one can talk without screaming, and that, more than either candidate's tax plan, is dangerous. Hank, I'll see you tomorrow. It's been a while since I said that.