What is a marginal tax rate?

There is a fair amount of confusion about what a marginal tax rate is and how it affects how much tax you would owe the government on a certain amount of income. These graphs are here to help you better understand the difference between a marginal and average tax rate and to easily calculate these rates for specific examples in the US context. This tool only looks at US Federal Income taxes and ignores state, local and Social Security/Medicare taxes.

Marginal tax rates are the rate at which an additional dollar of income will be taxed at. There are different tax brackets (each with its own marginal rate) depending on which dollar of income you are looking at. This is very different from the Average (or effective) tax rate that is the result of applying these marginal tax rates across all of your income.

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Instructions for using the visual tax calculator:

• Select filing status: Single, Married Filing Jointly or Head of Household. For more info on these filing categories see the IRS website
• Select percentage of regular income vs capital gains income. Regular income is wage or employment income and is taxed at a higher rate than capital gains income. Capital gains income is typically investment income from the sale of stocks or dividends and taxed at a lower rate than regular income.
• Move your cursor or click on the graph to select a specific income Make sure you note that the x-axis is a logarithmic-scale, meaning that income grows exponentially as you move to the right.
• Choose your graph preference One graph (Individual Tax Brackets) shows the individual tax brackets and how much of your income is taxed at the different marginal rates. The other graph (Aggregate Rates) shows the net result of applying the different rates to get your effective rate.

Here are two tables that lists the marginal tax brackets in the United States in 2019 that form the basis of the calculations in the calculator. 2018’s numbers are pretty similar.

 
You can see that tax rates are much lower for capital gains in the table below than for regular income (table above).

For those not visually inclined, here is a written description of how to apply marginal tax rates. The first thing to note is that the income shown here in the graphs is taxable income, which simply speaking is your gross income with deductions removed. The standard deduction for 2019 range from $12,200 for Single filers to $24,400 for Married filers.

• If you are single, all of your regular taxable income between 0 and $9,700 is taxed at a 10% rate. This means that your all of your gross income below $12,200 is not taxed and your gross income between $12,200 and $21,900 is taxed at 10%.
• If you have more income, you move up a marginal tax bracket. Any taxable income in excess of $9,700 but below $39,475 will be taxed at the 12% rate. It is important to note that not all of your income is taxed at the marginal rate, just the income between these amounts.
• Income between $39,475 and $84,200 is taxed at 24% and so on until you have income over $510,300 and are in the 37% marginal tax rate . . .
• Thus, different parts of your income are taxed at different rates and you can calculate an average or effective rate (which is shown in the aggregate rates graph).
• Capital gains income complicates things slightly as it is taxed after regular income. Thus any amount of capital gains taxes you make are taxed at a rate that corresponds to starting after you regular income. If you made $100,000 in regular income, and only $100 in capital gains income, that $100 dollars would be taxed at the 15% rate and not at the 0% rate, because the $100,000 in regular income pushes you into the 2nd marginal tax bracket for capital gains (between $39,375 and $434,550).

 
Data and Tools:
Tax brackets and rates were obtained from the IRS website and calculations were made using javascript and plotted using the plot.ly open source javascript plotting library.

This visualization looks at the staggeringly high energy use of Bitcoin and puts it into context: comparing it to electricity usage of US states. Unfortunately for Bitcoin, high energy usage is an intended feature of the system, rather than an unintended consequence. This is because mining is an increasingly energy intensive process, based upon increasingly computationally intensive calculations that are performed on high powered computers and graphical processing units.

Currently, 28 out of 50 states plus the District of Columbia all have lower electricity consumption than estimated annual bitcoin electricity consumption (~73 TWh per year). These states are highlighted in variations of yellow. This is approximately equal to the average annual electricity usage across all US States. States with higher electricity consumption than bitcoin are highlighted in shades of red.

When dividing the total energy use (73 TWh) by the current number of transactions (93 million), we get an average energy consumption of 783 kWh per transaction. Click on the “Energy per Transaction” button to see this visualization. What’s crazy is that a transaction is simply a transfer of bitcoin between “wallets”, recording the transaction, and a validation of the process. There’s no good reason why verifying digital transactions should take this much energy, except that it was built into the fundamental process of validating and mining bitcoin. 783 kWh is larger than the monthly per capita electricity consumption in 10 US states. It could also drive you and your family over 2000 miles in an electric car (e.g. Tesla Model S).

I’m not expert enough in this area to know how much more energy consumption will rise into the future, but if crypto advocates’ predictions come true and bitcoin is used extensively, millions of transactions will occur per hour instead of per year and the price of bitcoin may rise much higher than it currently is. If the price rises, then miners will be willing to expend more energy to “mine” the more valuable bitcoin. Needless to say, this sounds like a very bad idea from an energy consumption and sustainability standpoint.

Data and Tools:
State energy data comes from the US Department of Energy. Estimates of Bitcoin energy use come from Digiconomist’s Bitcoin Energy Consumption Index. The choropleth map is visualized using javascript and the Leaflet.js library with Open Street Map tiles.

When can I retire and how long do I need to save before I can retire?

That’s the key question! This interactive fire calculator was built to let you play with the inputs and help you understand how savings rate and retirement spending strongly determine how long it will take you to save up for retirement. Note: it does not simulate the post-retirement period when you start to draw down your savings. That can be done on this post-retirement fire calculator (Rich, Broke or Dead) which compares the frequency of various outcomes in retirement (running out of money, ending up with way too much money, and life-expectancy).

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Rich, Broke or Dead?

One of the key issues with retiring is ensuring that the money you have saved will not be exhausted during your retirement. This is also known as Longevity Risk and is especially important if you want to retire early, since your retirement could be 50 years long (or more). This interactive post-retirement fire calculator and visualization looks at the question of whether your retirement savings can last long enough to support your retirement spending and combines it with average US life expectancy values to get a fuller picture of the likelihood of running out of money before you die.

It helps to answer the question: If I start out with $X dollars at the beginning of my retirement, will I run out of money before I die?

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Whenever there’s been an extended bull run, one question that comes to mind “Should I invest in the market now, or wait until a pullback?” The question comes about because of fear and loss aversion: fear that the market will drop right after they invest and the observation that people want to avoid losses more than they value gains. However, historically, the correct answer, at least over the last 69 years, has been to invest and not to try to time the market.

This was also demonstrated in the Market Timing Game; that people are pretty bad at predicting the direction of the markets and given the upward trend of the market, it’s simpler and more likely than not, better to just stay invested in the market. The corollary to this is that when you have additional money to invest (e.g. from regular savings from your paycheck or a one-time event like the sale of a house), it makes sense to invest the money and not worry about whether the market is at a high or low point. Some graphs that look at the distribution of returns when the market is at an all time high (ATH) can help answer this question of whether you expect to see worse returns than investing at other times.
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The Market Timing Game simulation is premised on the idea that buying-and-holding index investing and index funds are a no-brainer investment strategy and market timing (i.e. trying to predict market direction and trading accordingly) is a less than optimal strategy. The saying goes “Time in the market not timing the market”. In this simulation, you are given a 3-year market period from sometime in history (data starts January 1, 1950 and goes through the most recent market price, as prices are updated daily) or you can run in Monte Carlo mode (which picks randomly from daily returns in this period) and you start fully invested in the market and can trade out of (and into) the market if you feel like the market will fall (or rise). The goal is to see if you can beat the market index returns.
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