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In which Hank takes on some fascinatingly boring stuff about the U.S. tax code, what sorts of incomes there are, how tax brackets work, and why rich people pay a substantially lower tax rate than most people in America.

And then he makes some value judgements and expresses some opinions which are not necessarily the opinions of his brother, and are obviously the opinions of a guy who is not an economist. But really? It just doesn't seem fair.


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A Bunny
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Good morning John, and welcome to the special edition of vlogbrothers where we discuss the basics of the United States tax policy -- and why Warren Buffett pays a lower tax rate than his secretary. According to the United States government, there are basically three ways to make money. 1) You can inherit it when someone dies. 2) You can make it by working; this is called "ordinary income". Making money off YouTube ads, getting paid to do a job, taking raw materials like yarn and then converting them into something worth more than those raw materials, like a cool TFIOS hat -- that's all ordinary income. And 3) capital gains. Now before we talk about capital gains, let's first talk about the ordinary income tax. Some people have a misconception here that when you reach the new tax bracket, all of your income lumps over into this new place, so you have to stay below a certain tax bracket. Well that's not how it works, it's actually -- it's a significantly better system than that. Here we have the four lowest tax brackets for a married couple. Now if you make $10,000/year, you pay 10% tax. You probably pay less than that because of deductions, but that's, that's your tax rate. Because the first tax bracket is $0 to $17,000. Now if a married couple makes $50,000, they've moved into the second tax bracket. But still, their first $17,000 is taxed in the first tax bracket, and then the rest is taxed in the second. This works on up the scale for $100,000, and when I made this graph I had to make it extra long to fit on $500,000, which includes all of the tax brackets. But even that person who makes $500,000 still pays into all of the lower tax brackets before they get to their big high-up ones-- Just wanted to clear that up. Now, back to capital gains. Capital gains is money that you get when you buy something, and then you wait, and then you sell it later for more-- that's income, you've made money there. Most capital gains are made in the stock market, though you can also do it lots of other ways, real estate being a big one. If you make more than, like, $30,000/year, your capital gains tax is $15%. It's a flat 15% for everybody, and basically, capital gains is how really rich people make most of their money -- they invest in stuff, and then it gets more valuable, and then they sell it. Now that's basically explaining how it works, now I'm gonna get into how I feel about it. This is just my opinion. Business has always seemed really weird to me. Money in the stock market doesn't actually do anything; companies don't have access to like, do stuff with that. It's not being used to build cars or go to Mars or make video games or whatever. I know that investment is important for our economy, but so is income. Income is -- to me, it seems like it's worth more. So why is it then that we tax people almost invariably more on the money that they earn by providing actual value, like, proportionate to the amount of money they make. The idea is that investment should be really good for the economy and that you need to encourage people to invest and so you should tax it less. The problem with that is that there isn't a lot of good data that actually supports that claim. What kind of concerns me is that the people who are advising the government on these tax policy decisions, are people who make their money this way. And maybe they, just like a lot of us do, overvalue their particular impact on the American endeavour. Or maybe they're super greedy, or maybe, on the other hand, they're right -- maybe they're right, maybe lower taxes for them is better for all of us. But I can't help but feeling deep down that it's tremendously unfair that a waitress at Applebee's pays a higher tax rate than a billionaire. Whether or not that's good policy, I'm not sure, but it does seem like bad ethics. But, as I say, I am not an expert and I am completely willing to be convinced that I'm wrong. Nerdfighteria, you are not wrong, because you kicked John's goal in the butt right out of the park. You kicked it in the butt out of the park, that's a mixed sports metaphor. A million dollars raised for Kiva before I even got to make my first video promoting it -- but please, still keep going, because one thing that is proven economically is that micro-finance is a really great way to help the developing world, and you can be a part of that through John, I'll see you on Tuesday.