Skip to comments.HOW THE TAX SYSTEM REALLY WORKS
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!
Oh, they understand it alright. But they also know that being fair does not get you re-elected...
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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?
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.
(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.
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.
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.
TAX CUTS FOR TAXPAYERS!
Has a nice ring to it, doesn't it?
Just five years ago the above would have been considered absurd ---- today however, that just might be their plan.
Find out who wrote it. I almost got sued for doing that once.