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HOW THE TAX SYSTEM REALLY WORKS
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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!

KEYWORDS: taxes
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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

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

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

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!)

To: Willing To Listen
Nice
5 posted on 01/08/2003 10:51:46 AM PST by Sgt_Schultze

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

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

To: Willing To Listen
Excellent! Thanks for the post.
8 posted on 01/08/2003 11:06:23 AM PST by Balata

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:

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

To: Ramius

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

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

To: Balata

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

To: Willing To Listen
More exposure bump!

13 posted on 01/08/2003 1:41:51 PM PST by Balata

To: Willing To Listen
Bump.
14 posted on 01/08/2003 1:44:36 PM PST by k2blader

To: Mark
Actually, I heard this on Cavuto several months ago. It was posted on the Fox news website for some time.
15 posted on 01/08/2003 1:53:04 PM PST by jcparks

Thank you!
16 posted on 01/08/2003 1:54:06 PM PST by Willing To Listen

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!

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

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.)

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)