Many people were puzzled and suspicious by his totally explainable final wager. Some thought he threw the game. Some neighbors agreed with and passed along an idea being circulated on Facebook that another win would move him into a higher tax bracket.
First, his wager in Final Jeopardy made perfect sense. Since he had not hit any of the Daily Doubles, he was unable to risk large amounts at a time, a tactic that led to insurmountable leads on previous shows. This was a bit of bad luck. His opponent was quick on the button, hit the Daily Doubles and managed to have a small lead going into the final question – 26,600 to 23,400. She only needed to risk enough to finish one dollar ahead of him in case he risked everything, which is what she did. He understood that his only chance to win was for her to get the answer wrong. If they both got it wrong, he needed to risk enough to still be ahead in case the third place contestant got it right and doubled his score of $11,000. That is exactly what he did – 23,400 minus his “conservative” wager of 1, 399 would have been 22,001. The amount he bet, conservative or not, was the best decision.
People who didn’t understand this jumped right to a subject they likewise don’t understand, tax brackets!
The US has a progressive income tax; the tax rate increases as the taxable amount increases. The tax rate on the first taxable dollar is the same for everyone whether you make one dollar or $2.5 million. The tax on the first $100,000 is exactly the same for everyone $13,874. That is about 14%. Anyone making another dollar pays 22% of that additional dollar. Anyone who makes $110,000, for example, pays the same as everyone else on the first $100,000 and then pays 22% on the additional $10,000. That’s how it works as the brackets change. The rate goes to 24% at $165,000, to 32% at $315,000. The highest bracket under the current system is 37% from $600,000 on up. (All examples are for the status of Married Filing Jointly.)
There is no bracket issue in the $2.5 million range. Taxes would be 37% for every additional dollar.
Note how this misunderstanding lets politicians get away with something that is not quite a lie, but is at least a misrepresentation. As the system works, if they lower the rate for the middle class, it lowers the rate for everyone who makes under $100,000, but it also lowers the rate on the first $100,000 for everyone else who makes more than that – even those evil rich people. Fiddling with the lower tax rates to help the middle class, helps everybody, the rich too. It can’t be helped. It’s how the system is set up!
Now those same politicians have the power to change the system and make it work differently, but they don’t, they just propagandize.
But the biggest takeaway from the Jeopardy story is not the wager or the tax implications. The biggest take away is how inclined people are to form an opinion, defend that opinion, post it on line and spread the word on subjects they don’t understand and apparently are too lazy to do a little bit of research to find the truth. They are so confident that their opinions are right, because they have been constantly reinforced by others with the same degree of ignorance. Bad information spreads like the plague.
Everyone pretends to understand taxes, but they are too complicated for most people to do themselves, which allows politicians to demonize opponents and tax preparation companies to stay in business. But many other more important and complex subjects fall into this same category of confidently held opinions grounded in a woeful lack of understanding: Social Security, Medicare, the healthcare system, economics in general – such as minimum wage and the comparative virtues of socialism vs. capitalism, government spending and the National Debt and the proliferation of deceptive advertising and junk science.
Many Americans can’t even figure out Jeopardy wagers, yet on issues vital to their personal and to the national success they participate in protests and demonstrations, post nasty comments and cartoons on social media and go to the polls to vote for politicians who are often equally mistaken about how the world works.
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