Posted on 12/06/2002 9:07:35 PM PST by BOBWADE
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 me 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. So I said to him, "let's put tax cuts in terms everyone can understand."
"Suppose that every day 10 men go to a restaurant for 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 percentage, being sure to give each a break, and he proceeded to work out the amounts each should pay. And so now 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 of the $20," complained 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."
Then, the nine men surrounded the tenth man (the richest one, paying the most) and beat him up. The next night the richest man didn't show up for dinner, so now the nine men 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, girls and college instructors, is how America's 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 any more. There are lots of good restaurants in Switzerland and the Caribbean."
The tenth man (the richest) didn't benefit in that tired worn out story...He went from paying 59% of the bill to 65% of the bill.
The restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same percentage, being sure to give each a break, ...that would be 20%.
The owner reduced the price by 20%. The "rich man's" part of the bill should have been $47.20, the ninth would have been $14.40, eighth-$9.60, seventh-$5.60, sixth-$2.40, fifth-$0.80.....
If I were the "rich man", after the owner tried to pull a fast one on me like that I wouldn't go back either....
The rich man didn't benefit even by the story's convoluted math. Sorry, but a screwy tax system aside, the story is a mis-leading joke.
Nobody's Senator Kohl already has a 50% tax cut on that (thanks to those EEEEEEEEE-VILLLLL Republicans); very-long-term capital gains (on investment vehicles held more than 5 years) top out at 18% (those in the 10/15% bracket pay 8%), compared to 20% for those held 1-5 years (those in the 10/15% bracket pay 10%) and normal confiscatory rates for "short-term" (held less than a year) capital gains.
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