Tax Lesson

CATCH AND EAT · 03-01-2004, 12:00 PM

Thank you Boedy for the illustration on how it all works. BTW, When's dinner? :grin:

Boedy · 03-01-2004, 11:41 PM

Sometimes Politicians can exclaim; "It's just a tax cut for the rich!", and it is just accepted to be fact. But what does that really mean? Just in case you are not completely clear on this issue, we hope the following will help.

Tax Cuts - A Simple Lesson In Economics

This is how the cookie crumbles. Please read it carefully.

Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh $7.
The eighth $12.
The ninth $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20."

So, now dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes.

So, the first four men were unaffected. They would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his 'fair share'?

The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being 'PAID' to eat their meal.

So, the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now paid $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man "but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than me!"

"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only $2? ! The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore. There are lots of good restaurants in Europe and the Caribbean.

Kentucky Hog Hunter · 03-02-2004, 08:44 PM

You da man Boe...

My finance professor's in college went over this time & time again...

Thanks for making the point....

crabbait · 03-02-2004, 08:51 PM

Gee............this makes much more sense than it did when it was on here a few days ago and a whole lot more sense than it did when it was on last year!

Of course, we need to ignore the fact that the richest 1% have well over 90% of the wealth, and the tax breaks, loop holes, off-shore tax shelters, etc.

Besides, people with millions and billions of dollars know a whole lot better what to do with it than people who are making $15-20 an hour and trying to support families. How would they know how to make a good investment when they are just trying to keep the kids in clothes and the bills paid.

Boy, I sure am glad we have some really rich people to take care of all that filthy cash for us.......

willametteriveroutlaw · 03-02-2004, 10:51 PM

The best 1% of the fishermen catch 60% of the fish should we run them off the river because they put in their time and hard work to become the best? Those stinking hard working fish hogs

.

ampersat · 03-03-2004, 06:00 AM

Some folks work hard for their wealth and some folks inherit their wealth. It's not really how you came by it that irks people so much. It's the breaks and the shelters that only the richest folks get and can afford to make use of. Sure the 10th man should pay 59% according to the model but in fact he ends up paying a lot less because of how he handles the wealth to minimize the tax impact. Is it his fault? If I were that 10th man, I'd certainly do the same thing. Kind of like the Martha Stewart thing: if you knew you were going to get punched, wouldn't you duck?

That's why the flat tax make so much sense. No breaks, no shelters, everybody pays the same percentage into the kitty. But we don't have a flat tax, do we? Why is that? Because we need real campaign finance reform. When you take the financial influence of the richest Americans and big business out of the political process, then government will work for all of us. Until then, government is simply a puppet for the richest Americans and big business.

Hoosier Daddy · 03-03-2004, 06:47 AM

Theres really no way around this issue as long as our politicians come from among the wealthy. Party doesn't matter, they're all well off.

Cool Texan · 03-03-2004, 07:56 AM

Amp, there is no way a flat tax, or any other change, will eliminate shelters and loopholes. Its part of the game. Change the rules, and the pros will find ways around it....always has been, always will be. That's why the tax code is so long and confusing...they're trying to capture everything, and they never will.

Otolith · 03-03-2004, 08:17 AM

So lets say I make alot more than Crabbait, and paid twice as much as him in income tax. What do I get extra for the extra money I paid? The benefit of having gotten to put myself in a position to make more money than him? Gee, thanks, I think

Good post Boedy -- even if it was posted by somebody else every day for a year straight. Some people need to be reminded that often (and they still wouldn't get it).

John Stossel covered this topic on 20/20 a few weeks back. Check out Myth #5 from his Lies, Myths, and Downright Stupidity

There is an ad on a TriMet bus I see sometimes (don't know what the ad is for) that says something along the lines of "The filthy rich don't seem so filthy when you become one of them."

Here is to a filthy future for some of us

[ 03-03-2004, 09:20 AM: Message edited by: Otolith ]

Hogback · 03-03-2004, 08:52 AM

Our tax system is so complicated even the people who wrote it don't understand it, that in itself should tell us something! Everyones perspective on taxation is different, who pays the most? I don't care. Like my ol daddy said "figures don't lie, but liars figure." Should a person who has more money than they could ever spend complain about taxes? Should a person who refuses to work be taken care of by those who do work? Isn't this really the discount?
Lets look at another bit of IRS trivia.
80% of income is earned by <10% of wage earners. The remaining 20% is divided by the remaining 90%
In simple terms one person in ten earns 80 of every 100 dollars. The remaining 20 dollars is divided by the remaining 9.
Randy

[ 03-03-2004, 10:59 AM: Message edited by: Hogback ]

northriver1 · 03-03-2004, 09:50 AM

There are alot of loopholes in the tax code that we all use rich and por alike. Home interest deduction, child care, kids, medical, state taxes paid and contribution to your favorite charity to name a few. Should we close those loopholes too just to be fair?

ampersat · 03-03-2004, 05:17 PM

Yes, all the loopholes should be closed. All of them. That's exactly the idea behind and inherent to the flat tax proposal. It takes all of that confusing mumbo jumbo and throws it right out. No special breaks for anyone. We all pay the same percentage of our income. Period. Will it ever happen? NO! Because the wealthy have the most to gain from the exceptions and loopholes, and coincidentally hold all of the power and influence in our government, the flat tax will never gain traction in our political system.

What do you get for your taxes if you pay more? For one, how about more prisons to lock up the criminals who would otherwise be breaking into your house riiiiiiiight about now, coming for all your high dollar goods. Money is power and along with power comes responsibility. If you don't think the mitigating factor of government has anything to do with your financial success, I dare you to go back and reread Karl Marx as economist and his successors. What people think he said isn't what he was actually saying.

Real campaign finance reform would take the wealth and the wealthy out of politics. Why do you think it hasn't happened and most likely never will? Ours isn't a free America - it's an empire of the wealthy, by the wealthy and for the wealthy. They only suffer the rest of us (and that includes you, Otolith [no offense]) because they need people to staff their companies. Long live the All Mighty Dollar!

[ 03-03-2004, 06:23 PM: Message edited by: ampersat ]

Cool Texan · 03-03-2004, 06:20 PM

Quote:

Originally posted by ampersat:
Yes, all the loopholes should be closed. All of them. That's exactly the idea behind and inherent to the flat tax proposal. It takes all of that confusing mumbo jumbo and throws it right out. No special breaks for anyone. We all pay the same percentage of our income. Period.

<font size="2" face="verdana,arial,helvetica">I'm all for it. Now, before we get started, define "income" for us all. (note, this is where the loopholes begin to re-emerge)

SHLEPROCK · 03-03-2004, 08:27 PM

The only person that I know well enough is a business owner and he only pays taxes on the money he decides he needs to spend to live comfortably.
The rest gets reinvested. He is now semi-retired and the property taxes is the only thing that cost more than the average Joe.
As his little empire grows!

2LEYS · 03-04-2004, 03:35 AM

I don't like the idea of an absolute flat tax with no deductions. I would like to see a flat rate for people below the poverty level. Then another rate for everyone else. I would like to still see you be able to adjust your income with deductions but after all the deductions you still pay a flat rate on your adjusted income.

If you tax the wealthy, the wealthy may just leave the table and you and I will be screwed. The wealthy are what make this country what it is. If they leave they take our jobs with them.

How many people work for a lower to middle class person? Not many. We work for the rich. But what makes this country great is that each and everyone of us has the potential and the opportunity to become of the rich guys.

northriver1 · 03-04-2004, 07:32 AM

The flat tax will not work because close to 50% of Americans do not pay taxes now. I can't see the dems trying to push that idea along to their base. Why would they buy off on this idea so don't blame the wealthy. Just my opinion but I believe the rich would be in favor of a flat tax in the 15% - 18% range. Everyone pays 15% - 18% of their income and NO loop holes, sign me up.