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How tax breaks help the rich

Meet the drivers of inequality lurking in the US tax code.

President Donald Trump and Republicans in Congress hope to give the US tax code its biggest overhaul in 30 years. Trump says their goal is “to make the tax code simpler and more fair for everyday Americans.”

But their plan would keep three tax breaks that benefit the wealthiest Americans: the mortgage interest deduction, the charitable deduction, and the preferred rate for capital gains.

These tax breaks are incredibly expensive. Each year, the mortgage interest and charitable deductions cost the US Treasury $100 billion and $70 billion, respectively. That’s more than we spend on Head Start, the federally funded preschool program, and on Pell Grants for low-income students to go to college.

The preferred rate for capital gains means that the income you earn through a salary or an hourly wage — a paycheck, basically — is taxed at a higher rate than the money someone makes trading on the stock market. It’s why a billionaire like Warren Buffett pays a lower tax rate than his secretary.

But how, exactly, do these tax breaks work? Before we decide whether to keep them or get rid of them, we need to understand whom they benefit. Check out the video above to learn more — and to find out if you can deduct the interest on your yacht mortgage. (Spoiler: You can.)

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