Why are Taxes So Complicated? - The musical?

Good morning John. Hope you're feeling better; you missed a video for the first time in a long time because you're very sick and I cannot hold it against you. But to make you feel better I'm gonna talk about everybody's favorite topic which is the complexity of the US tax code. Woo! [Music starts] Tax policy is so fun. [normal] It's not gonna happen, no. It's not, it's complicated and it's too complicated. I think everybody agrees that it's too complicated just nobody agrees on how is the best way to simplify this. So, instead of talking about that, let's talk about why it's complicated in the first place because you think maybe we can just make this really simple - to start all over again, how would you do it? Well the simplest way to do that would be a head tax. A head tax would be taxing every single person the exact same amount. So you enter the world and your fee for existing in the US is like twelve thousand dollars a year. If everybody paid twelve thousand dollars a year, we would pay the entire federal budget and it would be good. This works really well for families like mine, I could afford to pay twelve thousand dollars a year for all the people in my family. Doesn't work as well for people who don't make any money like retirees or disabled people. Also for all of the people that that would be like all their money that they made, that would be a bummer. Work all year you make like eight thousand dollars then what happens? The government just comes in they uh They just take you, they take you to tax jail. [sings] Tax jail! [guitar riff] Tax jail! [normal] So a head tax; that's not gonna work. So instead, let's tax people's income, if you don't make any money you don't pay anything if you make a lot of money you pay a bunch. For a flat tax to work on individual human income, you gotta pay - get ready for it - A 50% flat tax. A little bit more than that actually. Every single person has to send half the money that they make to the government and this sounds wrong right because nobody pays 50% taxes. Well it turns out we're missing something because when I was talking about taxing the amount of money that people make We gotta examine the definition of money. And of people and of make. All those words. Because getting money is just one way to receive value and if we only tax money then everybody would get paid in like diamonds or gold or something so we have to tax value so if i give you a car in exchange for doing work for me that's still income and we still tax that. The us tax code doesn't actually tax money, it taxes value. This is really important when part of somebody's payment might be stock in a company. Now we gotta examine, what is a person? Because it turns out a lot of the money in the US isn't made by flesh-and-blood human things. It's made by these non-meat people called corporations. [singing] So now it's time to talk about corporate tax. [not singing] Currently most corporations in the US are taxed just as if they were people. So, I own businesses; If the end of the year one of my businesses has more money in its bank account than it had at the beginning of the year, that difference is taxed as if it is my money because it is. I control that corporation, I control the money and so i pay the exact same taxes on it that I would if it was just my money. That's how it works right now. That's not how the Republicans in Congress want it to work. They want people like me, if i have money that's getting made by my corporation, to pay like way less tax on that I don't know why, 'cause it's still income to me but I guess, I don't, I... Let. Look. That's not what we're here for, that's not what we're doing, we're not analyzing the tax thing we're just talking about why it's complex. And now we have to talk about the definition of make. If you just tax people's ordinary income you're not catching a huge chunk of what happens. 'cause there's another way to make money, and a lot of people make money this way. And that's when you buy something and then it becomes worth more and then you sell it and you make money. This is called Capital Gains and it happens mostly with real estate and with stocks in the stock market. So instead of talking about taxing the amount of money people make, we're actually talking about more like the uh, like the [singing] increase in value received by entities which make, make you unsurprised to see how there's complexity. [normal] There's two really good common-sense reasons not to tax people who don't make very much money. One: They tend to spend almost all of their income anyway, they save very little and if they have less money they are more likely to end up being supported by social services which costs the government money. And two: Because they don't make very much money, taxing them actually doesn't contribute that much to the budget. Like you could increase their tax bill an amount that would be extremely impactful to them, but it would not be impactful to the budget. [singing] So you wanna tax the rich people more and the poor people less, make a bunch of tax brackets and it gets more complex. [normal] Tax people who make a bunch of money more, one because we can afford it and two because you make way more money when you raise their percentage, because they have so much more income. Now the second to last reason why the tax code is so complicated I'm not even gonna sing it, it's just because the government wants to encourage certain behaviors in people. So it gives people tax credits for saving money for retirement, for going to school, for saving money for health care They let you write off parts of your mortgage because they want to encourage homeownership, that kind of thing. The government also has provisions for just things that like they're just trying to be more fair. Like for example right now, if you go to graduate school you might make like ten thousand dollars a year in actual money, but you get tuition deferment so you don't have to pay your tuition. But, that is value being delivered. So technically that value of your deferred tuition is income, 'cause you got that value, remember we're talking about value not money. So if you get like thirty five thousand dollars of income from your tuition deferment but you don't have any actual income, that's a huge burden for graduate students so that is not counted as income as part of the tax code. At least at the moment but again we're not talking about what they're planning on doing in Congress right now, that's not this discussion. Finally, the last reason why taxes are so complicated iiiiiiis [guitar music] [singing] rich ***, avoiding their taxes so we've got to make up lots of rules to keep them paying their taxes. [normal] Every time I come across something really annoying in my like business tax stuff I'm like, 'Why is this rule even here?' And then I realize, it's because somebody was using some underhanded little thing to avoid paying their taxes and the government had to create a new rule. Thanks so much, I'm so glad you didn't have to pay those ten thousand dollars so that now everybody in the world has to deal with this new rule. Taxes are complicated. I don't like it, nobody likes it, everyone would like there to be a simpler system. But I do worry when people are talking about simplifying it because every change to the US tax code has real impacts on real people. And ultimately, if you want one reason why it's so complicated, That's it. That's the reason. John, I'll see you on Tuesday. [guitar music] [singing] Capital Gains!