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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 1-5051-79 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

To: Blood of Tyrants
All taxation on American citizens sucks money out of the economy.
21 posted on 08/05/2002 9:15:32 AM PDT by WhiteGuy

To: VRWC_minion
No, more like 1-4 gets all the pizza and soda, 5-6 are considered too wealthy and get nothing.
22 posted on 08/05/2002 9:19:59 AM PDT by KansasGirl

To: Red Jones
Two problems, one minor, one major. The minor one is payroll taxes is on all earned income.

The major problem is that payroll taxes are to fund a retirement benefit and not to fund the general expenses. So, the more accurate statement is that the government forces lower income people to fund for retirement at a higher portion of thier income than high income people.

We should not force them and we should let them have more control over their own retirement funds.

23 posted on 08/05/2002 9:21:41 AM PDT by VRWC_minion

To: wcbtinman
lots and lots of people pay zero payroll taxes at all. I work as a consultant, I get an hourly fee, I pay zero payroll taxes.
24 posted on 08/05/2002 9:22:01 AM PDT by Red Jones

To: KansasGirl
Make that 5-10 recieve nothing.
25 posted on 08/05/2002 9:24:10 AM PDT by KansasGirl

To: KansasGirl
No, more like 1-4 gets all the pizza and soda, 5-6 are considered too wealthy and get nothing.

LOL, and if the 5-6 even ask if they could have the leftovers that 1-4 didn't even eat they are accused of wanting to starve the poor.

26 posted on 08/05/2002 9:25:38 AM PDT by VRWC_minion

To: Red Jones
lots and lots of people pay zero payroll taxes at all. I work as a consultant, I get an hourly fee, I pay zero payroll taxes.

You don't pay SE tax ?

The high rollers would love to hear how you legally avoid SS and Medicare tax.

27 posted on 08/05/2002 9:28:30 AM PDT by VRWC_minion

To: VRWC_minion
I don't know how it works, but when I work as an employee at a lower wage through a consulting agency I have taxes with-held and the tax rates are higher. But when I work as a consultant and am paid direct and a much higher rate, not through an agency, then I don't have it withheld and the tax rates end up being a lot lower. Come to think of it I know my tax consultant does take some money for social security tax, but it ends up being very low compared to what it would've been if it was a regular paycheck with the standard payroll taxes.
28 posted on 08/05/2002 9:38:25 AM PDT by Red Jones

To: VRWC_minion
Assume they ordered two pizza slices each and a soda.

Under your assumption of equal shares in the proverbial pie, the 6th-10th guy should certainly get the cost reduction. Under other assumptions, not.

29 posted on 08/05/2002 9:55:38 AM PDT by Deuce

To: Red Jones
but it ends up being very low compared to what it would've been if it was a regular paycheck with the standard payroll taxes.

Your SE tax is designed to be exactly the same as your payroll tax. In fact as a self employed you pay for both the employer and employee portions.

If you have in the past gotten paid as employee and as self employed your employee W/H was probbaly enough to cover your extra SE tax. However if in a year you mostly get self-employed income and you are not setting aside another 15% your going to get a big surprise.

30 posted on 08/05/2002 9:59:20 AM PDT by VRWC_minion

To: Deuce
Under your assumption of equal shares in the proverbial pie, the 6th-10th guy should certainly get the cost reduction. Under other assumptions, not.

How is it in the federal government ? Does the rich guys limo cause similar wear and tear on the roads as my Ford Taurus ?

Does the military that protects the rich guys life also protect my life ? Are the poor getting extra benefits because they are poor ?

31 posted on 08/05/2002 10:02:20 AM PDT by VRWC_minion

To: Mr. Jeeves
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.

No, it is impossible to make such an assessment. What I'm saying is that if the government did not exist, the 10th man would have only a minor fraction of what he has with the government. People who benefit the most should pay the most.

32 posted on 08/05/2002 10:02:39 AM PDT by Deuce

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.

So what you're saying is the rich have so much power, they can hurt us if we don't give them what they want?

33 posted on 08/05/2002 10:06:02 AM PDT by Age of Reason

To: Age of Reason
correction:

So what you're saying is the rich have so much power freedom of choice, they can hurt us if we don't give them what they want make it financially unreasonable ?

34 posted on 08/05/2002 10:09:05 AM PDT by VRWC_minion

To: Blood of Tyrants
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.

LOL.

Those nine fools forgot to get his wallet!

Did they beat up the waiter next?

35 posted on 08/05/2002 10:11:42 AM PDT by Age of Reason

To: VRWC_minion
Do you not recognize that in the absence of government Bill Gates would have a small portion of what he has now. Ipso facto, Bill Gates "benefits" from government and should pay a hefty share for its upkeep.
36 posted on 08/05/2002 10:11:48 AM PDT by Deuce

To: VRWC_minion
What is money, if not power?
37 posted on 08/05/2002 10:14:16 AM PDT by Age of Reason

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.

Sounds like another good argument against a national sales tax.

The poor and middle class will find it impractical to escape tax on life's necessities, like food and simple clothing, while the rich can afford overseas luxuries.

38 posted on 08/05/2002 10:20:40 AM PDT by Age of Reason

To: Deuce
Do you not recognize that in the absence of government Bill Gates would have a small portion of what he has now.

And our combined wealth as a nation would be far less so that I would be much poorer. In fact, I would be still be preparing income tax returns using a service a bureau and my clients would be paying much higher fees.

Do you not recognize that in the absense of taxes we would have a larger portion of what we have now ?

39 posted on 08/05/2002 10:21:06 AM PDT by VRWC_minion

To: Age of Reason
What is money, if not power?

I think you are confused. Money is not power. In fact the most powerfull man ever had little more worldly belongings than a tunic.

40 posted on 08/05/2002 10:27:10 AM PDT by VRWC_minion

To: Blood of Tyrants
bumping
41 posted on 08/05/2002 10:27:26 AM PDT by Sgt_Schultze

To: Deuce
What I'm saying is that if the government did not exist, the 10th man would have only a minor fraction of what he has with the government.

What if the government were 10% of its current size. How much would he have then?

The issue at hand is the rampant growth of government and the welfare state. Democrats always make the argument that without government the rich wouldn't be rich, but that is a false dichotomy. The argument isn't that government should be abolished - it's that it has grown far too large, consuming far too great a slice of the GDP.

42 posted on 08/05/2002 10:46:44 AM PDT by Mr. Jeeves

To: Age of Reason
Ever read Atlas Shrugged? No, they can't hurt us, but they can allow the whole mess to destroy itself.
43 posted on 08/05/2002 10:52:01 AM PDT by Blood of Tyrants

To: VRWC_minion
think you are confused. Money is not power. In fact the most powerfull man ever had little more worldly belongings than a tunic

I said money is power.

I did not say that money is the ONLY form of power.

There is no doubt, by the way, that rich and powerful humans have fostered religious beliefs and have influenced religious leaders, all as a way to keep the lower classes compliant to the wishes of the upper classes.

This need not conflict with an individual's belief in his religion.

I'd be hard pressed to think of a religion that has not admitted to some degree having once gone astray from the influence of powerful interests.

Think of Henry VIII's making himself head of the church in England.

Think of the whole protestant movement as a rebellion against the influence of wealth on the Catholic leaders in Rome.

History is replete with examples.

Think of Hammurabi recieving the tablets of laws from the Sun God--an example of convincing people that these are the laws they must follow; that there must be no debate, because the Sun God made these laws (not the rich and powerful), and that is that.

A useful device for governing.

44 posted on 08/05/2002 10:57:11 AM PDT by Age of Reason

To: Blood of Tyrants; Ancesthntr
Not only do they take the fruits of your labor by force, but these days here in California the combined fed/state take off the top of just about every wage earner is 40%. Forty cents out of ever dollar. For someone who makes a very middle class income of \$50,000 per year and has few or no deductions, that's \$20,000 to the government right off the top, leaving only \$30,000 to pay rent, car payments, insurance, and other living expenses. It's no wonder more and more people are in debt to the government. Forget corporate greed — it's government greed we all have to worry about.
45 posted on 08/05/2002 10:58:32 AM PDT by Wolfstar

To: VRWC_minion
Government costs money. Someone must pay. The proper allocation of who pays is subject to debate. The allegory starting this thread implies that it is somehow obvious that the rich pay too much (or, at least enough). My original point, which is quite objective, is that even if you assume that income is the appropriate basis for all taxes, knowing that a particular group pays 40% of the taxes is not sufficient information to determine whether that group deserves 40% of a tax cut until you determine the portion of income they receive. If they receive 35%, they may deserve more than 40% back; if they earn 60% of the income, they are entitled to less than 40% back.

Is there something about my above clarification that you disagree with it? If so, what, specifically, and why?

46 posted on 08/05/2002 10:59:19 AM PDT by Deuce

To: Mr. Jeeves
The issue at hand is the rampant growth of government and the welfare state.

I strongly suspect that the need for bigger government grows exponentially with population growth.

If you want to keep the need for government to a minimum, today's massive influx immigration must cease.

In my lifetime I have seen America's population double, and our freedoms halved.

47 posted on 08/05/2002 11:03:07 AM PDT by Age of Reason

To: Blood of Tyrants

From the excerpts I've seen on these forums from that work, I am not impressed.

And in general, I avoid looking to works of fiction for any analysis of reality.

48 posted on 08/05/2002 11:08:08 AM PDT by Age of Reason

To: Mr. Jeeves
What if the government were 10% of its current size. How much would he have then?

It depends on which 90% is eliminated; whether 10% is enough to protect his assets against thieves and foreign invaders; etc.

You are introducing a new subject about proper level and composition of government. I favor reducing government and paying down debt before any tax cuts are considered. But the subject on this thread is: given that a tax cut is given, who is entitled to it.

49 posted on 08/05/2002 11:13:36 AM PDT by Deuce

To: Deuce
The allegory starting this thread implies that it is somehow obvious that the rich pay too much (or, at least enough).

That wasn't my impression. I thought the allegory was intended to answer the question about why when lowering the taxes the rich should get a larger share of the refund. It was my impression that rather than arguing that point your posts were intended to switch the subject to one that you felt more comfortable arguing.

My original point, which is quite objective, is that even if you assume that income is the appropriate basis for all taxes, knowing that a particular group pays 40% of the taxes is not sufficient information to determine whether that group deserves 40% of a tax cut until you determine the portion of income they receive.

The statement you fashioned uses the word "deserves". As such it is an undefined term and can mean different things to different people. It would be nice if you provided a definition. If you in fact wish to imply that we should endeavor to place a use tax on those whose who use the various services that the government provides I would be willing to listen to that. But in as much as the subject of this thread is lowering a tax based on incomes and not services you would be mixing one form of tax to justify another form. This is a form of straw man argument. If you wanted to be true to your analysis and expand the scope to look at taxes based on government use of services you would and must take a full picture of it. Lets factor in the propery taxes, excise taxes, road use, UC payroll tax, sales tax, telephone taxes, etc that both Microsof and its customers pays. Lets also look at the expenses and see what parts of the budget is a service provided to Gates that isn;t provided to the poor. Does Gate's A\$\$ get better protected by the military than mine ? Does Gates take a larger share of social welfare than the poor ?

If they receive 35%, they may deserve more than 40% back; if they earn 60% of the income, they are entitled to less than 40% back.

("deserve ?")I first disagree that you have established your premise that "they" get more from government just because they are wealthy. Further, as stated you are mixing the stated purposes of taxes and if you truly want to do a asset vs. liability analysis you need to take in the entire picture not just the narrow view that suits your point. Third, even assuming all the numbers ran your way the answer to the question of how to rebate an income tax fairly is still the same. It should be in proportion to the amounts originally taxed. Anything else is a shift of the tax burden without justification. Taking in the undefined concept "deserve" is just class envy politics.

50 posted on 08/05/2002 11:31:48 AM PDT by VRWC_minion