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Old 2017-06-06, 00:20   #84
CRGreathouse's Avatar
Aug 2006

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Originally Posted by science_man_88 View Post
I would argue that technically speaking in the bottom tax bracket you won't have this result as the tax rate stays the same through the whole first bracket
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.
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