Skip to comments.How Tax Work - Send This To Your Democrat Friends
Posted on 10/26/2004 9:36:50 PM PDT by Gary Drumm
Just in case anyone needs clarification on what the difference is between "lower, middle, upper" classes. The following is a synopsis of the US tax structure put into layman's terms by David R. Kamerschen, Ph.D, Distinguished Professor of Economics,536 Brooks Hall, University of Georgia, Athens, GA. http://www.uga.edu/.
For anyone out there who thinks that the wealthiest of Americans are benefiting from tax cuts at the expense of the rest of America, please read this extremely well-put analogy.
Top 1% earn 21% of all income; pay 37-1/2% of all taxes Top 5% earn 35% of all income; pay 56-1/2% of all taxes Top 10% earn 46% of all income; pay 67% of all taxes Top 25% pay 84% of all taxes Top 50% pay 96-1/2% of all taxes Bottom 50% pay 3-1/2% of all taxes
Just in case you are not completely clear on this issue, here is an old story that we hope will help explain our US Tax System.......
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 people 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 people (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 person (the richest) would pay $59. So, that's what they decided to do.
The ten people 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 will only cost $80. The group still wanted to pay their bill the way we pay our taxes. So, the first four people 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 people realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth person and the sixth person would each end up being 'PAID' to eat their meal. So, the restaurant owner suggested that it would be fair to reduce each person's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so: The fifth person, 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 people began to compare their savings. "I only got a dollar out of the $20," declared the sixth person. He pointed to the tenth person "but he got $10!" "Yeah, that's right," exclaimed the fifth person. "I only saved a dollar, too. It's unfair that he got ten times more than I got!" "That's true!!" shouted the seventh person. "Why should he get $10 back when I got only $2? The wealthy get all the breaks!" "Wait a minute," yelled the first four people in unison. "We didn't get anything at all. The system exploits the poor!" The nine people surrounded the tenth and beat him up.
The next night the tenth person 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.
Excellent. A great way of putting the current tax situation.
Thanks for posting this; now forwarding to friends and family.
I love this analogy... I used to have it saved to my computer, but lost it when my hard drive crashed awhile ago. Thanks for posting it.
RE: Tax Cuts - Yet Another "Urban Legend" gains circulation!
Great analogy, shame it lies about its authorship!
From his own C.V. @ http://www.arches.uga.edu/~davidk/
"Contrary to Internet folklore, Dr. Kamerschen is NOT the author of "Tax Cuts: A Simple Lesson in Economics." Additionally, he does NOT know who wrote it. "