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Old 2017-06-06, 00:27   #85
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"Forget I exist"
Jul 2009

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Originally Posted by CRGreathouse View Post
Right -- in the lowest tax bracket, the tax system is often (locally) proportional rather than progressive or regressive. In the US the very lowest earners pay no tax, which is clearly proportional. Once you make more than (roughly) the standard deduction, $6,350 in 2017, you start paying 10% federal tax on the amount above that, which means that your effective tax rate goes from just above 0% if you make just more than this amount to nearly 6% when you make $15,675, which is the top of the 10% bracket plus the standard deduction. (Of course you might be able to take a deduction larger than the standard deduction, in which case your effective tax rate would be lower.) So in the US, above a very low income, federal income tax is progressive.

I wouldn't talk about capital gains here, which are entirely unrelated. If you and your neighbor both earn $1000, you'll both have to pay income tax on your $1000. Let's say you both pay $100 so you each have $900. If your neighbor spends the $900, she may pay sales tax on the goods purchased, but that's it. If you invest the $900 and eventually sell it for $1100, you'll pay capital gains tax on the $200, even though you already paid the income tax on the original money (and even though you'll pay sales tax on what you buy). That's not to say it's good or bad, just that it's a different thing, not related to income tax, since the invested money is already post-tax.
TFSA's aren't taxed at all here to my knowledge and RRSP contributions and gains are deductible from taxable income but withdraws from the RRSP's ( or RRIF's if you make it that long) are taxed at marginal rate ( which lowers once you become retiree if the financial literacy class I had at one of my placements is still proper in my head).
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