How tax breaks help the rich

The United States has a problem with income inequality. People have different ideas about
why this is happening. CEO pay climbs every single year without exception. The United States has lost 5 million manufacturing jobs since the year 2000. big shifts that’s happened in the economy that is lead in part to a decline in union membership. But one if the biggest drivers of inequality is hiding here, in these 2,000 pages. It’s the US tax code. President Trump and Republicans in Congress have a plan to alter that code. and if they get their way it’ll get even better for the richest Americans. First let’s look at a few things that Trump and the Republicans don’t want to change about the tax code. the charitable deduction and
the mortgage interest deduction. Here’s how they favor the rich: Let’s say Dan makes $100 donation to his church.
He makes about $30,000 a year. Roughly, the median income for individuals in the US. Which puts him in the 15% tax bracket. It means he would save at most $15 on his taxes. But let’s say Dan’s boss Steve makes the same donation to his church. Steve makes $500,000 a year which puts him in the top tax bracket. And the same $100 donation could save Steve $39.60 on his taxes. Dan and Steve give the same amount to their church but Steve saves more than twice as much. Small examples like this add up. People making $100,000 or more account for about 57% of all the charitable contributions in the US but they get 76% of the tax benefits. This deduction is also really expensive. The US spends $70,000,000,000 a year on it. More than eight times what it spends on Head Start the federally funded preschool program and more than twice what it spends on Pell grants for low-income students to go to college. Plus there’s all kinds of ways to bend the rules. Billionaire Mitchell Rales gets tax break for donating his collection of modern art to a museum that he built right next door to his house. A museum that’s only open for private tours. But the worst thing about about the charitable deduction? There’s not great evidence that it works. Turns out you don’t need a tax break to
encourage people to be generous to others. In the 1980’s the top tax rate
for the richest people was 70% and through a series of reforms it dropped to 28% and the Council on Foundations, it’s kind of a trade group for charities, said, ‘Oh my God, you do that we’re going to lose all our contributions.’ Guess what? No difference. People gave just as much with a much lower tax rate. Austria, Finland, Ireland, Italy, Sweden, Switzerland, and New Zealand have all gotten rid of their deductions for charitable contributions and that hasn’t had an impact on
donation rates. One easy way to make things more fair? Replace the tax deduction with a tax credit. If Dan and Steve both give $100 to their church, give them each a $15 tax credit. That’s how they do it in Canada. A tax credit reduces the amount you owe, so the same donation gets the same benefit no matter how rich you are. There’s another tax deduction that’s a boon for the wealthy. The mortgage interest deduction costs about $100,000,000,000 a year to the Treasury. We could use that money to treat wounded veterans, to build hospitals, to build highways but instead we give it to rich homeowners. Here’s how it works: Let’s say Dan buys a house for $100,000.
He doesn’t pay for that all at once. Each month he writes a check to the bank for $1,000. Let’s say $800 goes to paying for the house, and the bank keeps $200. That’s interest! Dan writes twelve of these checks a year, so he pays $2,400 a year in interest. The mortgage interest deduction let’s Dan subtract that interest from his taxable income which could save him as much as $362. “Nice,” thinks Dan, that is until he hears about Steve. Steve also buys a house for $100,000. He also writes a $1,000 check each month paying $200 in interest. So after a year, Steve can also deduct the $2,400 from his taxable income. But that same deduction can save Steve more than $960. Nearly three times as much as Dan for the exact same mortgage payments. It doesn’t stop there. Steve can buy a second home, deduct the interest, and save even more. Or he can get a mortgage for his yacht, count it as a second home, and deduct the interest. Sorry Dan, your fishing boat doesn’t count. There are deductions everywhere. The money you lose from gambling? Deduct it. Fancy business dinners? Yep. Money you put in a retirement account? That too. You can even deduct the fees you pay an accountant to help you find more deductions. And while theoretically Dan could take advantage of these same deductions the fact is, people like Steve benefit a whole lot more. People who make about $400,000 a year or more make up about 5% of taxpayers but they get more than half the benefits from these tax deductions. Now there’s a third part of the tax code that Trump and the Republicans want to keep and it’s even better for the richest Americans than all of these deductions The preferred rate for capital gains. Here’s how it works: According to the US tax code, there are two different kinds of income. Earned income is when you go to work and somebody pays you a salary or wage a paycheck. That’s earned income and we have a whole set of income tax rates for that income that go up to 39.6%. This is where Dan and Steve’s tax rates come from. Unearned income means guys who trade paper. Guys who sell stock or buy commodities and then sell it. Invest in real estate properties and then sell them. That’s capital income and we tax that at a lower rate. Let’s say Steve earns $500,000 a year as a surgeon and Laurie earns the same amount as a hedge fund manager. Even though their income is the same, Steve’s tax rate is 39.6% but Laurie’s tax rate is nearly half that, 23.8%. So Steve ends up with a much higher tax bill. This is why billionaire investor Warren Buffet pays a lower tax rate than his secretary. His money comes from capital gains while hers comes from a salary. Debbie works just as hard as I do and she pays at twice the rate I pay. Ronald Reagan thought the same thing. Reagan had been a very high, high bracket taxpayer. In fact, he paid at the 90% rate in the 1950s. He was a movie star. His accountant kept telling him well sign these documents and that’ll shift your income from labor to capital income and Reagan saw that that was hokey. Why should that be? Reagan’s landmark 1986 tax bill tax capital income and labor income at the same rate. People said, “Oh my God, you can’t do that. Then nobody will invest. Investments will plummet.” This chart shows the value of the S&P 500, a stock market metric that measures how well big businesses are doing. After Reagan raised the capital gains rate in 1986, businesses continued to prosper. Reagan’s successors, George H.W. Bush and Bill Clinton also raise taxes and the on the wealthiest Americans. And the 1990s saw America’s longest period of consecutive economic growth ever. But the changes that Donald Trump and Republicans in Congress want to make to the tax code look very different. While the Trump and GOP plans get rid of some deductions neither gets rid of the charitable
contribution or mortgage interest deductions Both plans would lower taxes on capital income for people like Laurie the hedge fund manager. And both plans would reduce the number of tax brackets from seven to three. and cut the top tax rate. Which would mean big tax savings for someone like Steve and minimal savings for working and middle-class people like Dan. Rather than working to reduce the growing gap between the richest Americans and everyone else these new tax plans would make that gap even wider.

100 thoughts on “How tax breaks help the rich

  1. Why should anyone pay more tax?
    Everyone should pay equal amount of tax. Just because you are rich it doesn't mean you use the road more, hospitals more, call ambulance more.

    Poor broke scums are just jealous because rich people worked hard and now rich.

  2. The rich get taxed less because the government use that as incentives for the rich. You get taxed less if you’re in real estate so more people invest in real estate therefore creating housing and jobs to manage the real estate. If you removed those incentives you would see unemployment and homelessness rise. Everyone is allowed to do it. Instead of complaining about smart people taking initiative why don’t you just go do it yourself?

  3. You know real problem is lack of education sound like steve is more financially responsible and intelligent then dan that why he benefit socialism is not the answer real education is not the bs the channel is feeding people.

  4. Steve SAVES more because he PAYS more and has a much HIGHER tax rate. Does anyone bother to ask why some people must pay higher rates? How is that fair?

    Nevertheless, I agree we should eliminate these deductions. Why should taxpayers subsidize donations and people’s mortgage interest? And there are a huge number of 501c(3) organizations that are not really “charities.” They are simply non-profit organizations that rely on donations to exist, but do not help people like a true “charity” would.

    End the deductions, but not for the reasons this video gives.

  5. At 3:20. It explains a lot. The amount that is owed on taxes from both parties. The guy (A) that owes $200k should absolutely get more tax breaks than the guy (B) that pays $30k. (A) puts more into the pot. Pretty simple.

  6. This video must thinks all of us are fools. First of all, why is income inequality is a problem? If I am better of this year than last year, why should I care about my neighbors have more money than I’m. Second of all, in order to have capital gain you need to invest your own money, the money has been taxed. In fact, that is double taxation. I would argue that capital gain income should not be taxed.

  7. I know a bunch a handful of people who make 300k a year and they all pay wayyy less than the average American. It's pretty motivating honestly.

  8. What a shame. Ppl who make money get to keep more of it. Smh like how dare they get to keep the money they make!

  9. This is all a very basic explanation of the US tax code, if "Steve" makes 30k a year and can save up to 362$ a year off his mortgage deduction, than he saves 1.21 percent of his yearly income with the deduction. If his boss saves 960$ a year off his mortgage, than he saves 0.192 percent of his income from the deduction. It's called basic algebra. Look it up.

  10. I like how she talks about the tax deduction as money that the US is spending. No that isn't how it works. The tax money is money that the government is STEALING from us anyways. Therefore, the money they are giving in tax deductions isn't THEIR money to GIVE. They are merely letting people keep their own money.

  11. Funny that Reagan said how the tax code helps rich people as though he thought that were bad thing. During his administration the tax code was changed so the corporations and rich people could pay much less tax. In order to cover the deficit that these tax breaks for the rich caused Reagan had to raise taxes on regular people 8 times.

  12. That would make sense if the rate was that low. See, cap gains is one way, deductions through properties are even lower than that: ~15%

  13. Taxing Steve more wont help Dan, only Steve can help Dan. That's a fundamental American principle people are forgetting

  14. Actually, if you want to make everyone equal then you should learn it from the USSR. The Soviet Union government owned everything in country. If in the Soviet Union was company for example like "Facebook" then every dollar and cent which earned this company was not money of one man or small group of men – it was money of everyone who lived in the USSR, money of inhabitants of the Soviet Union.
    Also, in the Soviet Union there was not any company, because government owned everything and government divided all incomes between all of inhabitants.
    Difference between the highest salary and lowest was about like 50$ per month and 300$ per month when the expensive car costs about 3000$.
    P.S. I have to say that socialism also has bad sides, as capitalism has good sides.

  15. people who earn a lot of money work hard for it, poor people didnt work hard in school and are paying for their arrogence now. dont punish rich hard working people for the stupidity of the lazy low class people.

  16. Tax breaks help every working person, rich or poor. Taxes help the parasites that rely on government aid, rich or poor.
    Cut taxes, starve the parasites!

  17. My friend once said no one wants to go against these bills because everyone thinks they’ll become rich one day…didn’t know how to respond but it made total sense

  18. Why should one person pay 15% and another 39.6%. The top 20% of earners in the US pays almost all the taxes. Of course, the “rich” are going to get more tax breaks…

  19. so why people aren't doing anything about it ?! instead they keep on voting for the wrong person ?! for real what is the drive behind that negative direction the Citizens are taken ? it shouldn't really matter if a Republicans or Democrats who is going to lead .. it's more important their knowledge and future plans for the future outcome .. i wish to see equal tax for all and medical system works for all . most of the European countries succeeded providing to their citizens decent life only in America !! the American people has no faith for anything that is good for all very strange !! specially if its good if its positive they just don't like it !!!

  20. The money that comes in isn't the problem, the problem is the attitude of the government representatives. Every dollar they take they spend showing no respect for the taxpayer. When we demand that they stick to the budget and halt the government pay raises they display their true colors, which is greed and envy. They have an underlying socialist attitude toward power and money. Let the rich grow a better conscience when every they will but how about stopping the handouts at such a disdainful rate and manner. President Trump is bringing common sense to the Federal Gov't and the grafters selfish crooked makeup is reacting antithetical to change for the better.

  21. Steve is cheating the system by paying 3 times as much tax as a percent of the income so he can get back 3 times more on that tax return. Cheater !

  22. The rich are rich cause they do their homework and learn how to make money and keep money. What you study, you get more knowledge of, and you get better at.
    The poor… well, they go to school to become an employee, they don't do their homework so they don't know employees pay the most tax. They don't educate themselves about money, buy liabilities and not assets. And oh, they complain about the rich…

  23. Vox has this all kinds of mixed up. Our tax system, at least at the Federal level, has become so progressive that virtually every tax cut, by definition, is a tax cut for the rich because on average, those are the only people who are actually paying taxes.

    … we don’t just pay money to the Federal Government, the Federal Government also gives money back.

    A lot of this comes in the form of the earned income credit, Social Security benefits, Veterans benefits or unemployment compensation, but all of these things are instances in which the government has first collected money and then turned around and given the money back.

    These are referred to as “transfers” by economists. Transfers = money the government gives to people.

    The average poorest 20% household received, on average, about $9,600 in transfers.
    The average middle-income household received, on average, about $16,700 in transfers.
    The average top 1% income household received, on average, about $800 in transfers.

    The average poorest 20% household received, on average, about $800 in Federal taxes.
    The average middle-income household received, on average, about $9,000 in Federal taxes.
    The average top 1% income household received, on average, about $534,000 in Federal taxes.

    The average poorest 20% household received, on average, -56%.
    The average middle-income household received, on average, -15%.
    The average top 1% income household ARE PAYING, on average, 34%. (Everything)

    On average, and there are some expectations, only the top 21% are net payers into the Federal government. This raises an interesting point because every time someone says, “Well, we should cut taxes,” someone else responds with, “Well, you mean tax cuts for the rich?"

    … Well, yeah they do because the top 1% and next 20% are the only ones actually paying taxes. This is called the Effective Tax Rate.

    Don't count on Vox to explain this to you. I am not saying this is a good or bad thing, or whether it is fair or not – fair is a subjective thing, this is just the complete picture – this devil is in the details. By the by, I did not vote for Trump, I hate everything tiny hands 45 stands for, and I am not a Republican nor do I vote Republican.

    I'm just a guy who likes reading and math.

  24. Hmm hey we make the rich richer, can we still call ourselves democratic, well ofcourse that's the American way

  25. What you guys are not thinking is that even though Steve gets bigger tax cut, he would be paying 40% for the remaining while Dan pays only 15%. Companies like Amazon who are not paying a penny using subsidiaries should be forced to pay taxes by implementing the laws like in India

  26. Thats why i started looking for tax loopholes and ways to invest cause government took most of my money in taxes and i dont want them to have my money

  27. One thing you failed to notice was that rich people provides jobs for poor people, the rich make businesses that other people can work in so that they can provide for their famil

  28. The biggest lie is that politicians thinks if they cut taxes on the rich, they will invest more in jobs. But that's a lie. Why would anyone hired 4 workers to do the same work that can do 2 workers!?

  29. someone writing this doesn't understand how tax brackets work… If you make 500K a year, you don't pay all of it at 39.6%

  30. Seems like we should keep the mortgage credit, but cap it at a certain percentage of income. Also, you could actually decrease the tax on the wealthy if you also instated minimum tax rates, such as 10-15% for the highest income bracket, and still raise just as much if not more tax revenue. But these simple changes would make too much sense??!!!!!!???!!!

  31. When I first bought my house my mortgage payment was 1480 per month only $90 went towards principal the remainder of the monthly payment balance went to interest taxes insurance PMI private mortgage insurance

  32. This vide leaves A LOT out! Like the fact that capital gains tax is less because the investor puts 100% of the capital and takes 100% of the risk and the government still wants 20%. As an employee you are renting your time for money, and the employee puts up 0% of the capital and takes 0 risk.

  33. See the thing is. Noone ever steps in the shoes of the wealthy.. The wealthy are generally penalised and punished for having wealth. Eg I make 500k yet I pay 40% in taxes but someone who makes 30 only pays 15%. Why do I pay over 25% more? I work hard for my money just like everyone else. Not everyone's born rich, some people work day and night for what they have and for it to be (in my opinion) be unfairly taken at a higher rate than someone else, I just feel like thats unfair.

  34. If President Donald Trump's policies are so visibly and out rightly inequitable, it is the citizens of US who are to blame in the political choices they are making or will be making.

  35. This is great, really do not need to border my self with taxes.. When I got money flip which solves them for me.. Thanks to hacker_ava222 on Instagram, I got $20,000 money flip to my account. When my pay was confirmed and this alone change my life and family too..

  36. You forgot to mention Steve paid the gov a much larger portion of his income as tax . And the boat and other items he bought stimulate the market.

  37. it goes to show that those in congress don't have the interests of the nation at heart and clearly they are working for the wealthy and only care about getting them more money they did not work for and they and the republicans are the reason why we face economic recessions and the working poor and middles class have to suffer because of there greed and stupidity and they never face any kind of justice nor any are put in prison for there crimes. just look at what the irreversible damage they are causing by there greed. these tax breaks need to be done away with and soon because these will do so much damage in the long run.

  38. I just hate how everybody just looks at the bad side of Trump and not all of the good thing he has done for this country.
    The biggest way has help this country is that he has created well of 1 million jobs,
    and has made America great again just like he said he would.

  39. Framing the problem as income inequality takes the focus off the struggles of most Americans. It should be framed as rising consumer debt

  40. Please don't increase investment income!! It's already hard for us poor people to make money investigating, and we're trying to pull our families up. Don't tax me more.

  41. Could you do a sister piece on how tax breaks for the rich help the poor? Personally, I know 1 person that was lifted out of poverty by them, me. On a side note, there is bible quote that gets misquoted a lot, where people say, money is the root of all evil. The actual quote is, the love of money is at the root of all evil. So this begs a philosophical question, which is more evil, the greed of the rich, or the resentment of the poor?

  42. A basic principle of every religion is "O ye rich ones on earth! The poor in your midst are My trust; guard ye My trust, and be not intent only on your own ease." ~The Hidden Words of Baha'u'llah, Baha'i Faith

Leave a Reply

Your email address will not be published. Required fields are marked *