You’re tired of working for the man. Almost all of your wages go to taxes, so you’re thinking of chucking it all, moving to Peru, and running a llama farm.
A tax wedge puts a mathematical description to that feeling. In economic terms, it represents the deadweight loss caused by taxes. It’s gets its name from the fact that, on an economic graph, the area representing the deadweight looks like a triangle, or a wedge.
To calculate the tax wedge, take the amount of taxes paid by an average single worker and divide it by the total labor cost for the employer who pays for that laborer. It's basically the ratio of taxes taken out of wages and the amount the employer is paying to get that work done.
Related or Semi-related Video
Finance: What is Tax Basis?8 Views
Finance allah shmoop What is tax basis Well your basis
is your cost Your costs for assessing how much you
owe when the tax man coming you bought a thousand
shares of whatever dot com at twelve bucks a share
in its eye po and huzzah Three years later the
stock is at thirty You decide whatever dot com is
now passe because a kardashians said so it'll be over
taken by whenever dot com and you want to sell
So you dio and you live in a thirty percent
marginal tax blue state And that is your federal tax
rates in twenty percent But then you add in ten
percent for state taxes and whatever's left for obamacare and
you pay about thirty percent tax on your gains Well
you paid twelve grand to buy the stock and after
the sale you took in thirty grand when you sold
it for a gain of eighteen thousand dollars Your tax
basis on those shares is twelve grand so you pay
thirty percent tax on the eighteen grand of gain or
fifty four hundred dollars to net from the sale of
thirty thousand dollars worth of stock How much Yeah twenty
Four thousand six hundred dollars He fancy math Had you
just gotten those shares free I'ii they were gifted to
you and you had no tax basis or a tax
basis of zero dollars a share Well then your gain
would have been from zero to thirty grand or a
gain of thirty thousand dollars to then be taxed at
thirty percent or nine grand in taxes to net just
twenty one thousand dollars after the sale So having ah
high tax basis or at least being able teo point
toe one saves you money when the tax man coming
and well that's pretty much it alright he's gone Now
you can all come out Come on it's Okay it's 00:01:53.698 --> [endTime] safe
Up Next
What is a tax deduction? Tax deductions decrease the amount of taxable income reported so that less tax is owed. For everyday civilians, these dedu...
What is tax loss carry-forward? We promise it's a real thing, not just a bunch of words strung together.
