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HOW THE TAX SYSTEM REALLY WORKS
Unknown

Posted on 01/08/2003 10:36:42 AM PST by Willing To Listen

A good time to resurrect this description of "how taxes work"...

How Taxes Really Work

This is a VERY simple way to understand the tax laws. 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; and the tenth man, the richest would pay $59.

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 (in tax language a tax cut).

"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 $80.00.

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 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.

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 his earlier $59.

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, but he, pointing to the tenth. "But 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, a little late what was very important.

They were FIFTY-TWO DOLLARS short of paying the bill! Imagine that!

And that, boys and girls, journalists 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.

Where would that leave the rest? Unfortunately, most taxing authorities anywhere cannot seem to grasp this rather straightforward logic!


TOPICS: Business/Economy; Politics/Elections
KEYWORDS: taxes
The copy I received of this credited a Professor of Business Law as the author. When I complemented him for his wisdom via e-mail, he said: "I am unaware of the true author's identity, which is unfortunate, since the piece has generated considerable interest. Unfortunately, one of my students sent it along and erroneously contributed the authorship to me."
1 posted on 01/08/2003 10:36:42 AM PST by Willing To Listen
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To: Willing To Listen
Sean Hannity has read this several times and said that he was posting it on his site.
2 posted on 01/08/2003 10:45:10 AM PST by Mark
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To: Willing To Listen
Thanks! As it happens... I was looking for that. It came up in a conversation yesterday.
3 posted on 01/08/2003 10:49:05 AM PST by Ramius
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To: Willing To Listen
I marked this up and posted it on my site yesterday. Wish I could find out who the author is. It's excellent.
4 posted on 01/08/2003 10:49:53 AM PST by zeugma (This is a dead parrot!)
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To: Willing To Listen
Nice
5 posted on 01/08/2003 10:51:46 AM PST by Sgt_Schultze
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To: Willing To Listen
This is what is going on in California (especially) right now. The wealthy that live there are really paying the freight big time. No wonder a lot of them are establishing permanent residence in Colorado instead.
6 posted on 01/08/2003 11:00:24 AM PST by Ronaldus Magnus Reagan
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To: Willing To Listen
"...most taxing authorities anywhere cannot seem to grasp this rather straightforward logic."

Oh, they understand it alright. But they also know that being fair does not get you re-elected...

7 posted on 01/08/2003 11:00:28 AM PST by Exeter
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To: Willing To Listen
Excellent! Thanks for the post.
8 posted on 01/08/2003 11:06:23 AM PST by Balata
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To: Willing To Listen
IF YOU WANT THIS MAN – AND MEN LIKE HIM – TO REMAIN IN CONTROL OF YOUR ECONOMIC AND PERSONAL DESTINY, CONTINUE TO TOLERATE THE CURRENT MARXIST INCOME TAX SYSTEM.

ONE MORE TIME:

IT’S ABOUT

P O W E R AND C O N T R O L!!

SIGN THE PETITION AT HTTP://WWW.VOTR.ORG. Then find out how you can do more to end America’s peculiar SPRING MADNESS.


9 posted on 01/08/2003 11:11:48 AM PST by Dick Bachert
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To: Ramius
Glad to hear that Hannity read this over the air.

Sure would be terrific if Rush would read this on-air as well!
10 posted on 01/08/2003 1:01:13 PM PST by Willing To Listen
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To: zeugma
It is excellent and I can't imagine how any Democrat could possibly refute the logic of it.

Can you imagine someone reading it on one of the Sunday shows in response to the claim that the "Tax Cuts" just favor the rich?
11 posted on 01/08/2003 1:21:57 PM PST by Willing To Listen
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To: Balata
How might we get greater exposure of this article?

It sure decimates the claim that "tax cuts only favor the rich".
12 posted on 01/08/2003 1:32:22 PM PST by Willing To Listen
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To: Willing To Listen
More exposure bump!

13 posted on 01/08/2003 1:41:51 PM PST by Balata
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To: Willing To Listen
Bump.
14 posted on 01/08/2003 1:44:36 PM PST by k2blader
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To: Mark
Actually, I heard this on Cavuto several months ago. It was posted on the Fox news website for some time.
Most excellent read, IMO.
15 posted on 01/08/2003 1:53:04 PM PST by jcparks
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To: k2blader
Thank you!
16 posted on 01/08/2003 1:54:06 PM PST by Willing To Listen
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To: Willing To Listen
The piece doesn't answer an important question: how did the ten agree to this arrangement in the first place? I'll tell you how - they voted, and the first six cheerfully agreed that the tenth man will pay 59% (later reduced to 52%.) Democracy at work, the best system considering the alternatives, to borrow a cliched phrase. Ebryboddy heppy!
17 posted on 01/08/2003 2:00:39 PM PST by Revolting cat!
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To: jcparks
You have to admit that it is most timely today especially after the President's message and the standard "it only favors the rich" response. I thank you for the bump.

We need to equip everyone with this response.
18 posted on 01/08/2003 2:02:08 PM PST by Willing To Listen
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To: Willing To Listen
then the fifth man and the sixth man would end up being PAID to eat their meal.

In "tax language," we call that the Child Tax Credit. Many wage earners currently make money with the Child Tax Credit. Their total income tax is less than zero; at tax time, their refunds are more than what was withheld from their paychecks.

If the Child Tax Credit is increased to $1000/child, even more wage earners will, instead of being taxpayers, become tax recipients.

Will my family benefit from the Child Tax Credit increase? You bet. Is it proper? A flat tax would be more proper.

Today, 96% of income taxes are shouldered by the top 50% of wage earners. Tomorrow? Figure the top 45%, or 40%. Does this sound like the conservative thing to do?

19 posted on 01/08/2003 2:02:28 PM PST by newgeezer (A conservative who conserves.)
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To: Willing To Listen
There are more than a few "populists" at this site who are not Willing To Listen...
20 posted on 01/08/2003 2:03:31 PM PST by Senator Pardek (I luv crackpots)
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To: Willing To Listen
But thanks to you, the question has just been answered.
21 posted on 01/08/2003 2:05:33 PM PST by Willing To Listen
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To: Revolting cat!
But thanks to you, the question has just been answered.
22 posted on 01/08/2003 2:08:37 PM PST by Willing To Listen
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To: Senator Pardek
I'm just happy that you are not one of those "populists".
23 posted on 01/08/2003 2:11:31 PM PST by Willing To Listen
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To: newgeezer
"Today, 96% of income taxes are shouldered by the top 50% of wage earners. Tomorrow? Figure the top 45%, or 40%. Does this sound like the conservative thing to do?"

You have just unwittingly stumbled upon the Libs' Game Plan. Their plan is to have all the income taxes paid by less than 50% of the voting-age populace. When that happens, they figger, tax cuts as a campaign issue will be OVER.

Jeff Greenfield had a very interesting bit to say on Errin' Brown's NewsNight on CNN last night - especially since it was Jeff Greenfield and that it was CNN. He said that the Dems are barking up the wrong tree on the class warfare angle - that they're still stuck in a kind of late 1940's mentality when refering to the "rich" as those making $100,000 a year. Back then, he said, that was a lot of money - but TODAY it's just a middle-level manager. Plus, he said, there's another angle the Dems are forgetting. The poor may not have much NOW, but they want their KIDS and their GRANDKIDS to be RICH. And they DON'T want their grandkids to be denied a chance to be rich - and then have it all taxed away when they get there.

You can visit CNN's transcript page and find the exact exchange. I was, for once, flabbergasted.

Michael

24 posted on 01/08/2003 2:20:00 PM PST by Wright is right!
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To: Willing To Listen
There was a study done a few years ago that showed some very interesting points.

(1) A who is in the lowest 10th percentile for wealth in any given year (including those persons who are drawing welfare) has less than a 10% chance that they will still be in that situation in 10 years.
Why? See 2.

(2) Most poverty is age related. Most people at the bottom of the income curve are young. Lower class or middle class background, they are poor in their teens and 20's. But as they get older, they work their way up the income curve, acquire property, and do well.

The study found that there were very few "welfare queens" (although of course they exist.) The strongest correlation with wealth was age.

Well, duh!

25 posted on 01/08/2003 2:34:18 PM PST by dark_lord
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To: Wright is right!
You have just unwittingly stumbled upon the Libs' Game Plan. Their plan is to have all the income taxes paid by less than 50% of the voting-age populace. When that happens, they figger, tax cuts as a campaign issue will be OVER.

Sure, as it applies to income taxes. But, their next plan I'm sure involves making payroll taxes progressive. You know, "From each according to his ability...."

Plus, he said, there's another angle the Dems are forgetting. The poor may not have much NOW, but they want their KIDS and their GRANDKIDS to be RICH. And they DON'T want their grandkids to be denied a chance to be rich - and then have it all taxed away when they get there.

Now, if many liberals -- poor or not -- give a hoot about what taxes their grandkids might have to pay, that would surprise me. I'm sure those who do give it any thought rationalize it such that, if their grandkids are fortunate enough to be rich, they'll owe it to their grandkids' less-fortunate contemporaries to shoulder the tax burden, just like today's 'rich' owe it to them. I think Greenfield gives them way too much credit.

26 posted on 01/08/2003 2:47:46 PM PST by newgeezer (A conservative who conserves.)
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To: Willing To Listen
Agreed...it IS most timely. But the last time I heard this was the last time Bush suggested tax cuts. When the demoncraps controlled the Senate (remember "negotiations"?). It should not take ten years for hard working Americans to get back their money from a corrupt and spendthrift government.
They seem to have only one track on their disc. The voters gave Bush FULL control...let's see what he does with it.
Let's bump this for the night shift. :)
27 posted on 01/08/2003 3:28:22 PM PST by jcparks
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To: jcparks
Couldn't agree with you more. They only have one track on their Disc: "tax cuts only favor the rich
28 posted on 01/08/2003 3:46:27 PM PST by Willing To Listen
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To: Willing To Listen
The problem with your explanation is it's still too complicated for some liberals and the rest of the liberals don't care. If you can take this explanation and cut it down to just four to six words then you'll have a workable conservative parable you can counter the "tax cuts only favor the rich" montra with.

i.e.
Tax cuts for the deserved.
Tax cuts for the bill payers.
Reward the payers.
Feed only the horses who are pulling the wagon.
You don't need new horse shoes if you're not pulling the load.
Shut up if you're not pulling your load.
etc.#;^)

29 posted on 01/08/2003 9:46:15 PM PST by Balata
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To: Willing To Listen
How abut this?

TAX CUTS FOR TAXPAYERS!

Has a nice ring to it, doesn't it?

30 posted on 01/08/2003 11:47:52 PM PST by Balata
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To: Balata
TAX CUTS FOR TAXPAYERS

It not only has a nice ring to it, it also says, how can I cut you in on something you're not involved with --- paying taxes.

I like it!
31 posted on 01/09/2003 4:40:39 AM PST by Willing To Listen
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To: Wright is right!
You have just unwittingly stumbled upon the Libs' Game Plan. Their plan is to have all the income taxes paid by less than 50% of the voting-age populace. When that happens, they figger, tax cuts as a campaign issue will be OVER.

Just five years ago the above would have been considered absurd ---- today however, that just might be their plan.

32 posted on 01/09/2003 4:51:26 AM PST by Willing To Listen
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To: zeugma
I marked this up and posted it on my site yesterday.

Find out who wrote it. I almost got sued for doing that once.

33 posted on 01/09/2003 5:03:06 AM PST by AppyPappy (If you can't beat 'em, beat 'em anyway)
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