ShmoopTube

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finance a la shmoop. What is the difference between progressive and

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regressive taxes? ah politics. listen to these two words - progressive - sounds good [flag shown]

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right? Like a bunch of happy face emojis, a new puppy, or a bright shiny new

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electric car moving forward. Pro. Positive. Good. Alright now, what about regressive, evil. [ electric car plugged in]

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like going backward. regressing. So, if ever you thought that finance wasn't

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political, well you were so wrong. about a century ago the notion was carried in

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the country, that the rich benefit more from society so they should be taxed at [old time city shown]

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higher rates .Not ridiculous logic, and probably both left and right can agree

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that this notion applies in many cases. But, there's a backdrop here of degree,

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meaning how much taxing of the rich is enough? And, how much is too much? So a [ man talking, definitions shown]

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progressive tax system taxes people something like - this and every year the

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numbers change- so we're just rounding here they to, you know, give you the

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gist. Tax free! Ok, so progressive rates might start at like zero tax for the [ chart shown]

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first ten thousand dollars of earnings then from 10,000 and 25,000 the rates 10

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percent and from 25,000 40,000 the rate might be twenty percent then from 40,000

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80,000 rate might be thirty percent and from 80,000 to like a gajillion the rate

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might be forty percent . So that's progressive - that is the rate itself- the

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tax rate itself goes higher as you earn more money. So let's say you earn 90

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grand a year. Remember, that on your first 10,000 you paid no tax. But, if you earned

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ninety thousand bucks that year well then on that last ten grand

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I either move from 80,000 to 90,000 earnings, representing all that overtime

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you put in on weekends and evenings. Well, that last marginal $10,000 gets taxed at [man sleeping at computer]

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a forty percent rate! So you keep only six thousand bucks of the ten grand you

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worked so hard to earn. You should have been just lazy and

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stayed at home instead. And you remember that fact darkly when you try to save up [bag of money]

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for your first home. yeah. it's hard to save money, the more money

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you make. All right, well anyway that's progressive. The opposite is regressive,

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which at its heart doesn't seem particularly evil or bad at all, it just [man talking]

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means that everyone is taxed at the same rate. So on a gallon of gas that Bill

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Gates consumes, which costs him three bucks a gallon and carries with it and [red car at gas station]

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about a dollar in tax, well Bill pays the same tax on that gas as Polly poor

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mouse, a waitress at Keens Diner. Rich and poor, in a regressive system pay the

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same amount of tax on a gallon of gas and that is considered regressive. The [definition shown]

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reason? well Polly's broke and Bill isn't. That dollar

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of tax represents a bigger proportion of her income, than it does of his, hence the

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scary regressive word. But, we're not making an argument here politically

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either way, so don't shoot the messenger. no matter what your view is on a [man holds out hands]

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progressive versus a regressive tax system, there's one thing everyone can

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agree about where taxes are concerned. It's that you better pay them when the [man screams as he opens front door]

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suits come a-knockin, or else.

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