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Why the rich pay lower tax rates

Why the rich pay lower tax rates

 

In case you haven’t heard, the rich get far more tax breaks then middle class Canadians. The problem is twofold, that tax deductions are based on your marginal rate, and how different sources of income are taxed differently.

 

Neither of these seem fair to most people, but it’s not my job to decide on what is fair and what isn’t. Rather my job is to understand it and educate anyone willing to listen.

 

To start, let’s look at why the rich get better tax deductions.

 

When you deduct anything off of your taxes, it saves you tax based on what your marginal tax bracket is. What this means is that someone who earns $70,000 will save 28.20%. While someone who earns over $220,000 will save 53.50%.

 

Let’s just assume Bob earns $70,000 and Sarah earns $220,000. They both have $10,000 in deductions they are going to claim on their taxes. Bob’s claim of $10,000 saves him $2,820 in taxes, while Sarah’s claim saves her $5,350 in taxes. Whatever deduction you have, saves you taxes based on your marginal tax bracket. Since Sarah is paying higher tax on her income, she also saves more by reducing her income through a deduction.

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