 The next tax category is a progressive tax, where taxes are calculated using multiple tax rates that increase with the tax base. So our federal income tax system is indeed a progressive tax. However, again, we wanna be careful of thinking about those two terms of polar opposites, a progressive tax and a flat tax. Because oftentimes, when we're making changes to the tax law, we can argue that those changes are flattening the tax or making the tax more or less progressive. So let's get into that a little bit more detailed by just getting a general conceptual idea of the progressive tax. So as many people often know, we can see that the tax rates are gonna go up as the income goes up. Now, this looks fairly basic, but it actually gets quite complex in terms of the calculations and also quite therefore complex in terms of making budgets and forecasts into the future. So we have our income categorization over here. So if it's not over 11,000, then we have a rate of 10% of the taxable income. Now, when we apply this 11,000, we gotta think about where that's gonna be applied in terms of the tax formula. That's gonna be generally the taxable income. So that complicates things a bit too. It's because we've got deductions that are gonna be involved to get to like the taxable income, which is kind of like net income. And then we have credits that are gonna complicate things as well. But when we're just thinking about applying the tax rate, we've got the 11,010%. And then if it's over 11,000, but not over 44,725, we have the calculation of 1,100 plus 12% of the excess over the 11,000. So what in the world does that mean? Well, that means that we're not taxing the entire amount if you earn something between 11,000 or your taxable income between 11,000 and 44,725. Let's say you earned 44,725. We're not gonna tax just the 44,725 at the 12% because we're gonna tax that first 11,000 at 10%. So you've got this layered kind of system. So I'm gonna say, okay, how would I calculate what does that mean? Well, if I earned exactly 44,725, it would be something like this. 44,725 minus the 11,000 that's gonna be taxed at the 10% minus the 11,000. That means that the 33,725 of the 44,725 is taxed at times the 12%. That's 4,047 plus the 1,110% of the 11,000 plus the 1,100. So hold on a second, let me do that again. 44,725 minus the 11,000 times 0.12 is that plus the 1,100. And that's gonna be the 5,147, which you can see is the next layer down here. So here we have, if you make over 44,725 but not over 95,375. So you're somewhere in between here you've got a 22% rate. That 22% is not gonna be applied at your full taxable income. If let's say it was 95,375, but rather it's only gonna be for the amount that is above the prior threshold. So now you've got some tax or some earnings taxed at 22%, some taxed at 12%, some taxed at 10%. So if you were to calculate that manually and a calculator is saying, well, hey, that's getting a little complex. And then if it goes up to over 95,375, but not over 182,100. So that means anything in between here is now taxed at the top's tax rate of 24%. And some of your prior income is taxed at 22. Some of that is taxed at 12. Some of the prior income is taxed at 10. So now you're applying one, two, three, four tax rates to the one income. And obviously we can see how this increases over time. So that means that as your income goes up, you are being subject to a higher tax rate up to the 37%. And notice also that this is for a single filer. So these tables will change and we'll talk more about them in the future when you get to like a married versus single and so on. But that's the general idea of it. And you can see that it can get kind of complex if you were trying to calculate this by hand. So using a table structure like this can make it a little bit easier. And then we have other tables and obviously tax software that makes it easier to actually calculate the tax. But the main point we gotta make here also is that when you hear people say that if I earn any more money, that's gonna push me into a higher tax bracket. There's sometimes you hear a misconception of that. So for example, if you were being taxed at the 44, 12% is your highest tax bracket and you're saying I don't wanna earn $1 over 44, 725 because if I earn 44, 726, then I'm gonna be taxed at 22%. Well, that's not the case that what's gonna happen is that $1 that you earned is gonna be taxed at the 22%. So it's still a disincentive to earn more money because you're gonna be taxed at higher rates. But it's not like all of your income is suddenly taxed at 22% if you go over a certain threshold. And that's often kind of a misconception. But even though taking that into account, there is of course still a disincentive to earn more over time because if the government is taking 37% of your earnings, then you're less likely or less motivated to earn than if they were taking only 10% of your earnings. So that's the general idea of it. Now, to actually calculate this, obviously we're basically dependent on either tax tables that are provided to us or we're dependent on the tax software. So that can be quite complicated to calculate. Many people argue, well, what's the problem with that? Because I have tax software, so it's easy. I can calculate it, no problem. But the other problem with it of course is projecting into the future. So if you're trying to say like I earned 40,000 this year and next year I think I'm gonna earn 100,000, you can't just look at your tax rate and say, okay, what is that gonna mean that I'm gonna owe on federal income taxes? Because now you have to apply this progressive tax structure and try to then project what you're gonna earn. And of course this progressive tax tables change every year as well. So you don't know exactly what the progressive tax table will be. And obviously this is just one component of actually calculating the tax because we're gonna have deductions we have to deal with and we're gonna have tax credits and stuff that we'll have to deal with, which also feed into the picture. So it actually gets quite complex quite quickly. And you can say, well, after the fact it's not that difficult to figure out what your taxes are after you've earned it but you're supposed to calculate the taxes as you're earning it, right? Which makes it a little bit more difficult because for example, if I started a new business and I earned $11,000 in the first quarter or something like that, I could say, okay, how much do I owe the government? I wanna give them their share. Well, you can't give them 12% because you're not gonna earn only $11,000. You gotta project how much you're gonna earn over the year, which maybe you have no idea but you have to project that so that you can then figure out what the proper rate would be or how much you should pay them based on the progressive tax rate. So that definitely adds some complexity into the situation, which adds a little bit of uncertainty which you would think would dampen a bit of GDP growth and whatnot. Now note that changes in the law when changes in the law happen, the changes will often be of a type where they're gonna make something more or less progressive. So you can imagine people saying, I think there should be more layers in this thing so that we're taxing, as people earn more money, they should have higher tax rates applied to them. So in that case, it would be more progressive, which a lot of times it sounds good. Obviously the term progressive sounds good and the idea of people that have the money paying more to some extent is a good idea, although you don't wanna dampen GDP, actual growth in the economy because that's the thing that ultimately funds the growth that everybody is gonna be participating in.