How Federal Income Tax Works (or why "Higher Taxes" don't mean what you think)

     Taxes are a pretty big deal. I don't think anybody likes to pay them, but there's definitely a sense of resignation around them. They are foundational to society, and our government literally couldn't exist without them. I honestly can't stress how important taxes are. Here's just a smattering of things taxes have paid/pay for:

1. Transportation. This means roads and highways, but also includes tons of facilities in land, air, and water. 
2. The military. The Department of Defense, Homeland Security, and everything else that keeps our nation safe (except from Russian meddling, apparently)
3. Agriculture. Keeps food prices stable and cheaper than they would be otherwise.
4. Education. K-12 and on into higher education, the government provides funding for education at all levels.
5. Department of Labor - the folks who guarantee minimum wage, overtime pay, and pretty much all work-related issues. Their job is to basically look out for the working person.

     I feel like these services (and plenty more, since the government has a budget of ~4 TRILLION) fit the definition of "you don't know what you got 'til it's gone." They permeate pretty much every facet of our lives, whether you realize it or not. If we stopped paying taxes and they all disappeared, you'd notice the difference very quickly. & it makes sense that these services are integral to all of our lives, considering we all contribute, to the tune of ~3.36 trillion, in the form of income tax and social security/medicare tax (all of these come from your paycheck, btw). Yet for something so foundational to society, a great deal of people don't know how taxes are calculated. So this post is strictly to explain how federal income tax is calculated (at its most basic level).
     Before we get into it, I would break up the general population into 3 categories regarding the level of understanding of taxes:

1. Nothing, or pretty close to it (I think the majority of the population falls into this group. Greater than 50%, but realistically as high as 70% of the population). Taxes get taken out of my paycheck, they suck, but I can't do anything about it. I don't really know what determines how much gets taken from each paycheck.
2. Something (a quarter of the taxpaying population, if that, falls into this group). There's a difference between income tax, Social Security tax, and Medicare tax. I've heard the term "tax brackets" before. I know people who make more money pay more in taxes. 
3. A lot (definitely less than 10% of the population. Guaranteed. I would bet my life savings that less than 1 in 10 taxpayers could calculate their own federal income tax on a basic level if they were given the appropriate tax rates and a calculator). I know the different tax brackets, the appropriate tax rate for each bracket, and can do rough calculations with the help of a calculator. 

     This post is geared to the first 2 groups - in my estimation, at least 3/4 of the population would benefit if they read this. So without further ado, let's jump in!
     In America, we have a graduated/progressive tax system. In brief, that means the more you make, the more you're taxed. Fair, right? Well... let's do a quick example (using completely made up numbers and tax rates. NONE of these numbers are based on the current tax rate, and are used STRICTLY for example):

Person A makes $80,000 and is taxed at a rate of 25%. This works out to $20,000 in taxes and a take-home of $60,000.
Person B makes $100,000 and is taxed at a rate of 35%. This works out to $35,000 in taxes and a take-home of $65,000

In this made-up scenario, person B makes $20,000 more, but only takes home an extra $5,000. That's pretty lame, right?

RIGHT! This lame situation is NOT how the American tax system works! So pat this country on the back, because we're doing that much right. Here's a conceptual breakdown of how a progressive tax system works (with a very simple example, followed up by the actual rates in the US):

     Let's say we have two rates, 10% and 20%, and we split our population into two income groups: those making $100,000 and under and those making over $100,000.
     That means for the amount of money you make that's $100,000 or less, you are taxed at 10%. And for every dollar beyond that, you are taxed at 20%. Essentially, this means everybody who earns more than $100,000 has two tax rates - one for their money from 0-100,000, and one for the money they earn that's beyond 100,000.
     I know it's still confusing, so let me provide a table to clarify
     0-100k: 10%
     100k+: 20%
     And examples:

• Person A makes $50,000
• At a tax rate of 10%, person A pays $5000 in taxes and takes home 45,000
• Person B makes $80,000
• At a tax rate of 10%, pays $8000 in taxes and takes home 72,000
• Person C makes $150,000
• Is taxed at 10% for the income 0-100k, pays $10,000 in taxes for that part, and then gets taxed at 20% for the income beyond 100k. In this case, person C gets taxed at 20% for 50,000 (because that's the amount they make beyond 100k), or another 10,000 in taxes. So, that's 20,000 in taxes, and a take-home amount of 130,000. 
• Person D makes $250,000
• Is taxed at 10% for the income 0-100k (tax: 10k). Taxed at 20% for the 150k they make beyond 100k (tax: 30k). Pays taxes of 40k and takes home 210,000. 

     Understood? I provided 4 examples to make it pretty clear what happens once you pass the 100k threshold. The US system is the same, conceptually, with more brackets and different income levels for those brackets. Here they are:
Income:         Tax rate
0-9525:              10%
9525-38700:      12%
38700-82,500    22%
82,500-157,500 24%
157,500-200k    32%
200k-500k         35%
500k+                37%

Let's look at a few (basic) examples. This is NOT taking into account deductions, exemptions, and anything else that complicates taxes. This is just the barebones framework, which is enough to give you a pretty dang good understanding of how taxes work in America. I've performed all calculations to give you a clear understanding, but that's really for those who like to get into the details. If you read and understand all the bullets for Person A, everything else is just extra:

• Person A makes $30k. Gets taxed ~3400, takes home ~26,600.
• 10% rate up to 9525 (9525 * 10% = $952.5)
• 12% rate between 9525 and 38,700. Since person A only makes 30k, we'd take 30000-9525 = 20475. The reason we subtract the 9525 is because we already calculated the taxes for that chunk - 952.5! Nobody wants to pay extra in taxes, right? So, 20475 * 12% = 2457 in taxes.
• Total taxes: 952.5 + 2457 = 3409.5
• Take home: 30000 - 3409.5 = $26590.5
• Person B makes $70k. Gets taxed ~11.3k, takes home ~53,700
• 10% rate up to 9525 (952.5)
• 12% rate between 9525 and 38,700 (38,700 - 9525 = 29175. Remember to subtract, since taxes are calculated chunk by chunk. 29175 * 12% = 3501)
• 22% rate between 38700 and 82,500 (person B only makes 70k, so 70k - 38700 = 31300. 31300 * 22% = 6886)
• Total taxes: 952.5 + 3501 + 6886 = 11339.5
• Take home: 70000 - 11339.5 = 58660.5
• Person C makes $150k. Gets taxed ~30k, takes home ~120k.
• 10% rate up to 9525 (952.5)
• 12% rate between 9525 and 38,700 (29175 * 12% = 3501)
• 22% rate between 38700 and 82,500 (43800 * 22% = 9636)
• 24% between 82,500 and 157,500 (150k - 82.5k = 67.5k * 24% = 16200)
• Total taxes: 952.5 + 3501 + 9636 + 16200 = 30289.5
• Take home: 150000 - 30289.5 = 119710.5
• Person D makes 350k. Gets taxed ~94k, takes home ~246k.

     So, why did I go through the trouble of all these calculations? When people mention ANYTHING about lower or higher taxes, they RARELY mention tax brackets. Why's this important? Well, tax policies that only impact particular brackets are only relevant to the people in those brackets. Those who refer to higher or lower taxes without elaborating are relying on your lack of understanding to influence your thinking. As an example, what if I proposed a resolution to lower taxes without mentioning that it would only impact the brackets above $82,500? Well, those making more money would be paying less, resulting in an underfunded government. That's just an example, though. Thanks for reading, now go spread your new knowledge!
   

Sources/references:
Government subsidies: https://www.investopedia.com/articles/basics/11/introduction-to-government-subsidies.asp
Department of Labor: http://webapps.dol.gov/dolfaq/go-dol-faq.asp?faqid=478
Federal budget: https://en.wikipedia.org/wiki/2018_United_States_federal_budget
Federal budget: https://www.mercatus.org/publication/government-spending-101/where-does-government-get-money-it-spends
Federal budget: https://www.nationalpriorities.org/budget-basics/federal-budget-101/revenues/
Tax rates and brackets: https://www.forbes.com/sites/robertberger/2017/12/17/the-new-2018-federal-income-tax-brackets-rates/#4e93051a292a
Federal Income Tax Calculator (this is the most fun to play with, and gives you a great idea of taxes at different income levels): https://smartasset.com/taxes/income-taxes#jbzYE4OzgU