Topic: Tax Cuts - A Simple Lesson In Economics (Read 18,018 times)
Santosh Puthran Administrator No Guts No Glory member is offline
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Tax Cuts - A Simple Lesson In Economics « Thread Started on Jun 23, 2007, 11:31am »
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..........and there are lots of good restaurants in Europe and the Caribbean ......... !! ( The author is based in US).........
Re: Tax Cuts - A Simple Lesson In Economics « Reply #1 on Dec 18, 2007, 5:19am »
Nice story, but if they really "paid their bill the way we pay our taxes", it would go like this:
The bill for all ten comes to $100. The first four men (the poorest) would pay 12.5% for SSI + 8% for local sales and import taxes plus the landlord's property taxes from their rent. It all adds up to about 25% of income even for the poorest.
The next to the richest would pay about the same (25%), since only a small fraction of his income is spent retail, because his SSI tax caps at $85K and because he has access to tax planning. The richest pays even less since he shelters his income out of the country and all of it comes from rent and capital income such as dividends which do not pay into SSI.
While the rich pay most of the income tax, capital gains and dividends, the poor pay the bulk of SSI, sales tax, property tax, gas tax and other miscellaneously taxes such as phone and utility taxes.
The poor men order beans and bread, while the wealthier order steak. The richest one orders 5 courses and eats only a bit from each plate before sending it back nearly untouched.
When the sit down to pay, the wealthiest proposes that since they should pay equally since they each pay an equal percentage of taxes. The poor men regret having to pay for the wealthy man's expensive dinner and complain, but he says he has a brilliant solution.
He pulls out a credit card. He says "this is a magic credit card. We can charge anything we want to it and it will never be cancelled." When the poor complain that that is illogical, he says no it's real and here is the secret why. "it's not my card" he says, "it belongs to your kids"
They agree that this is indeed a good plan and order a round of drinks 'on the kids'
Re: Tax Cuts - A Simple Lesson In Economics « Reply #2 on Dec 24, 2007, 4:06pm »
I agree with blt. I would add a couple items:
1. That when we go to war, it is the poor that must die, while it is the rich that profit.
2. And while the Government would consider it unconscionable to cap CEO, Doctor, and Lawyer pay, or capping housing energy, and food costs to a reasonable amount so the poor could afford them, they have no problem keeping the minimum wage so low that it is impossible to live on it.
3. The poor would love to earn more, even if they had to pay more in taxes. One reason the government is spending our kids future taxes now, is because wages for the poor have not kept pace with inflation. If wages had kept pace with inflation, the government would be rolling in money because there is so much more poor than rich.
4. The argument that raising the minimum wage will cause inflation such that, once again, consumer goods will become unaffordable can be easily turned on its head against its opponents. Political inaction on raising the minimum wage makes life unaffordable for the poor. But the inaction of not limiting wages with a wage ceiling on the rich is doing the exact same thing! This is double jeopardy for the poor; while the rich benefit from political inaction on both sides of the coin, the poor suffer equally from the same political inactions from both ends.
Santosh Puthran Administrator No Guts No Glory member is offline
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Re: Tax Cuts - A Simple Lesson In Economics « Reply #3 on Dec 26, 2007, 7:47am »
Progressive & Regressive taxes describe the tax table, not a political opinion. It's like a mathematical function. Most often these are called progressive or regressive tax tables or taxes. In a progressive tax, the more you earn, the higher your tax rate. In a regressive tax, the less you earn, the higher your tax rate.
The classical progressive tax is income tax. The classical regressive tax is sales tax. But there are many taxes and fees that are more extreme of each kind. Combined with this tax theory and these examples, a great deal can be induced about economics and politics.
Because most people are involved in preparing their progressive federal income taxes it is fairly well understood. And because most people are not involved in calculating their regressive taxes, it is fairly poorly understood. So we will concentrate on explaining regressive taxes, and how the two combine to make up our system, and most systems of taxation.
All known functioning systems of taxation have a balance of progressive and regressive taxes. This idea is almost never debated, the debates are over where the balance point should be, how much burden should be on the "rich", and how much burden on the "middle" and "poor"? For simplicity we will combine "middle" and "poor" just say "rich" and "poor", and put that dividing line somewhere between $50,000 and $500,000, as you wish. But we could just as easily have selected (say) $25,000 or $750,000 for our dividing line between "rich" and "poor", the principles are the same. In a progressive tax, the more you earn, the higher your tax rate. In a regressive tax, the less you earn, the higher your tax rate. Progressive taxes soak the rich, regressive taxes soak the poor. Source:Taxation
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Re: Tax Cuts - A Simple Lesson In Economics « Reply #14 on Jan 21, 2010, 1:48am »
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