Free Republic Browse · Search News/Activism Topics · Post Article

A Different Way of Explaining Taxes
Tax Free Tennessee ^ | Unknown

Posted on 08/05/2002 5:59:13 AM PDT by Blood of Tyrants

A Middle Tennessee accountant relays the following story.

I was having lunch with one of my favorite clients last week and the conversation turned to the government's recent round of tax cuts. "I'm opposed to those tax cuts," the retired college instructor declared, "because they benefit the rich. The rich get much more money back than ordinary taxpayers like you and I and that's not fair."

"But the rich pay more in the first place," I argued, "so it stands to reason that they'd get more money back." I could tell that my friend was unimpressed by this meager argument. Even college instructors are a prisoner of the myth that the "rich" somehow get a free ride.. Nothing could be further from the truth. Let's put tax cuts in terms everyone can understand.

Suppose that everyday 10 men go to dinner. The bill for all ten comes to \$100. If it was paid the way we pay our taxes, the first four men 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.

The 10 men ate dinner in the restaurant every day and seemed quite happy with the arrangement until 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. Now dinner for the 10 only costs \$80.

The first four are unaffected. They still eat for free. Can you figure out how to divvy up the \$20 savings among the remaining six so that everyone gets his fair share? The men realize that \$20 divided by 6 is \$3.33, but if they subtract that from everybody's share, then the fifth man and the sixth man would end up being paid to eat their meal.

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 paid nothing, the sixth pitched in \$2, the seventh paid \$5, the eighth paid \$9, the ninth paid \$12, leaving the tenth man with a bill of \$52 instead of \$59. Outside the restaurant, the men began to compare their savings. "I only got a dollar out the \$20," declared the sixth man pointing to the tenth, "and he got \$7!" "Yeah, that's right," exclaimed the fifth man. I only saved a dollar, too. It's unfair that he got seven times more than me! "That's true," shouted the seventh man. "Why should he get \$7 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 he 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 were \$52 short.

And that, boys and girls and college instructors, is how the 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 Switzerland and the Caribbean.

TOPICS: Business/Economy; Constitution/Conservatism; Culture/Society; Government; Miscellaneous; US: Tennessee
KEYWORDS: poor; rich; taxes; taxreform
first 1-2021-4041-6061-79 next last

1 posted on 08/05/2002 5:59:13 AM PDT by Blood of Tyrants

To: *Taxreform
2 posted on 08/05/2002 6:01:59 AM PDT by Free the USA

To: Blood of Tyrants
"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 Switzerland and the Caribbean."

You can't find a better historical example than that 10% "luxury tax" implemented in 1990 or so. The only ones who suffered were the American boat building companies - the "rich" simply went over to Europe (or elsewhere) to buy their new boats.

3 posted on 08/05/2002 6:22:39 AM PDT by Commiewatcher

To: Blood of Tyrants
I like that explanation.

Here's what I do I hear the mantra that the rich get more from tax cuts than the poor. I simply ask the question:

If I cut your taxes by 100% and I cut Bill Gates taxes by 5%, which tax cut was bigger?

Usually, all I have to do is ask the question and the light comes on in their eyes.

4 posted on 08/05/2002 6:25:31 AM PDT by ProudGOP

To: Blood of Tyrants
Liberals hate capitalism, they love communism and that includes Liberal republicans.
5 posted on 08/05/2002 6:28:49 AM PDT by Texbob

To: Commiewatcher
and yet despite the "facts" to the contrary, we get to listen, if we choose, to the endless mantra, of tax cuts for the rich. I want to just take a large rubber mallet to the thing "they" should be using for something besides a hat rack.
6 posted on 08/05/2002 6:38:19 AM PDT by wita

To: Blood of Tyrants
What if the first 4 people eat 1/2% of the food each, the fifth 1%, the sixth 2%, the 7th 5%, the 8th had 8%, the ninth had 15%, and the 10th had 67%. Under these conditions, the first four and tenth man are paying less than proportional to their share, the 5th is properly charged, and the 6th-9th are being overcharged. Therefore, under these conditions, 6-9 should receive the bulk of any price reduction. The original story fails to mention the critical % received by each man.

Unfortunately, however, the 6th-9th man have become incorrectly persuaded that the 10th man is entitled to most of the reduced price. They are naively afraid that the 10th man will not show up if he does not receive 59% of the price reduction.

7 posted on 08/05/2002 6:39:42 AM PDT by Deuce

To: Commiewatcher
You can't find a better historical example than that 10% "luxury tax" implemented in 1990 or so. The only ones who suffered were the American boat building companies - the "rich" simply went over to Europe (or elsewhere) to buy their new boats.

A friend of mine's father-in-law owned a luxury boat-building company. The luxury tax brought the number of employees down from approximately 800 to about 80. Boy, that taught those rich ba\$tards!

8 posted on 08/05/2002 7:06:57 AM PDT by Ancesthntr

To: Blood of Tyrants
Well thought out and written analogy.

Your next assignment might be to explain the funding of Social Security vs the funding of House & Senate retirement systems.

Good post!!!!

9 posted on 08/05/2002 7:10:03 AM PDT by jos65

To: Blood of Tyrants
A Different Way of Explaining Taxes

How about this. The government is simply a much larger and more sophisticated version of the Mafia. It is also smarter, as its made members have convinced us that this super Mafia is there for our own good. The "taxes" that we pay are actually just another form of protection money.

If you don't believe me, try not paying your taxes for a few years. When the super Mafia finds out, they oftentimes send a hit squad. If you are exceedingly lucky, you only lose everything you have, either because of outrageously high penalties and lawyers fees, or through outright seizure of your money and property.

10 posted on 08/05/2002 7:12:01 AM PDT by Ancesthntr

To: Ancesthntr
When I try to explain this to people, they look at me like I am crazy. Any time you are required to pay or be threatened with deadly force (and ultimately they WILL break down your doors and kill you or drag you off), it is protection money.

Isn't this exactly how the mob works?
11 posted on 08/05/2002 8:11:40 AM PDT by Blood of Tyrants

To: jos65
Thanks, but I can't take credit.
12 posted on 08/05/2002 8:12:29 AM PDT by Blood of Tyrants

To: Deuce
The original story fails to mention the critical % received by each man.

Assume they ordered two pizza slices each and a soda.

13 posted on 08/05/2002 8:18:47 AM PDT by VRWC_minion

To: Deuce
You seem to be making the analogy that the man who pays 59% of the total tax bill is getting 59% of the total government services.

The analogy fails by inspection.

14 posted on 08/05/2002 8:43:36 AM PDT by Mr. Jeeves

To: Blood of Tyrants
Another, simpler way to explain it that someone previously posted on this forum:

Two people in the checkout line with a malfuntioning cash register. The cash register is overcharging by 10%. The first person buys \$20 worth of goods. The second person buys \$200 worth of goods. When the mistake is found, the first person is entitled to a \$2 refund, the second gets \$20.

But Liberals would have you believe that it's more "fair" for both to get \$11.

Mr.M
15 posted on 08/05/2002 8:44:08 AM PDT by Marie Antoinette

To: Blood of Tyrants
Actually, they were \$42 short on the last night, since they were feeding 9 instead of 10 people. But still...
16 posted on 08/05/2002 8:44:19 AM PDT by Norman Conquest

To: Blood of Tyrants
except of course that this article is obfuscating the whole issue by only considering income taxes as the example. I don't know the exact figures, but I think that of all federal revenue collected about 35-40% is income taxes. Another 30% of federal revenue comes from payroll taxes. Payroll taxes fall entirely on the non-rich, if you make past a certain amount you pay zero payroll taxes.

We should all understand that when you cut income tax rates from our current rates that this will cause a supply side boon to the economy, meaning that the economy will grow more rapidly than it otherwise would and that the federal guv will collect more revenue than it otherwise would. This happened in the 1980's and in all previous large income taxes we've had. Even Alice Rivlin, the democrats' top expert on budget matters, said that this happened in the 1980's.

Cutting payroll taxes may be a good idea, but it will also most likely result in a decline in revenue collected by the government. So, we never hear talk about cutting payroll taxes. The result of this is that many middle income people have to pay a higher portion of their income in taxes than many upper income people.

17 posted on 08/05/2002 8:48:37 AM PDT by Red Jones

To: Commiewatcher
"The only ones who suffered were the American boat building companies - the "rich" simply went over to Europe (or elsewhere) to buy their new boats."

OR they bought slightly USED boats, which weren't taxed. The repeal of this stupid tax was one of the quietest repeals of any law - ever.

Michael

18 posted on 08/05/2002 8:49:31 AM PDT by Wright is right!

To: Blood of Tyrants
except of course that this article is obfuscating the whole issue by only considering income taxes as the example. I don't know the exact figures, but I think that of all federal revenue collected about 35-40% is income taxes. Another 30% of federal revenue comes from payroll taxes. Payroll taxes fall entirely on the non-rich, if you make past a certain amount you pay zero payroll taxes.

We should all understand that when you cut income tax rates from our current rates that this will cause a supply side boon to the economy, meaning that the economy will grow more rapidly than it otherwise would and that the federal guv will collect more revenue than it otherwise would. This happened in the 1980's and in all previous large income taxes we've had. Even Alice Rivlin, the democrats' top expert on budget matters, said that this happened in the 1980's.

Cutting payroll taxes may be a good idea, but it will also most likely result in a decline in revenue collected by the government. So, we never hear talk about cutting payroll taxes. The result of this is that many middle income people have to pay a higher portion of their income in taxes than many upper income people.

19 posted on 08/05/2002 8:50:44 AM PDT by Red Jones

To: Red Jones
"...if you make past a certain amount, you pay zero payroll taxes."

You may have just mis-spoke, but you will have paid payroll taxes on all income earned up to that point, so you did pay the payroll tax. In fact, you paid more payroll tax than the majority of working Americans just to get to that point.

20 posted on 08/05/2002 9:10:05 AM PDT by wcbtinman