The importance of tax cuts

[phigamucsb]

I thought this was awesome

Tax Cuts - A Simple Lesson In Economics

This is how the cookie crumbles. Please read it carefully.

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.
The tenth man (the richest) would pay $59.

So, 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.

"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. 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 each 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.

And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now paid $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

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. He pointed to
the tenth man "but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too.
It's unfair that he got ten times more than me!"

"That's true!!" shouted the seventh man. "Why should he get $10 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 the tenth man 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 didn't have enough money between all
of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our
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 Europe and the Caribbean.


David R. Kamerschen, Ph.D
Distinguished Professor of Economics
536 Brooks Hall
University of Georgia

[Kevin]

I grew up in an affluent household. I saw how much my parents paid in taxes -- and how much they worked.

I completely agree with the article.

Unfortunatlely, for some families, not "showing up to the table" isn't an option. Would sure as hell be just though, wouldn't it?

[KSigkid]

I did not grow up in an affluent household...my parents worked extremely hard, but for various reasons things were tough at times.

However, I think Dr. Kamerschen's scenario is pretty solid.

[Kevin]

Originally posted by KSigkid
I did not grow up in an affluent household...my parents worked extremely hard, but for various reasons things were tough at times.

However, I think Dr. Kamerschen's scenario is pretty solid.

Do you think it's fair though that some people who make around $200,000 pay 60% of their income after everything is said and done (I'm talking state tax & sales tax as well) to the government while others pay comparably negligible sums?

I don't.

The top 1% pay 29% of all the taxes -- the top 5% pay over 50% of the total income tax collected. It's redistribution of the wealth. In my gut, I feel it's wrong.

[Betarulz!]

Yeah but the top 1% control as much wealth as the bottom 40% combined. And the top 13,000 richest families have almost as much income as the poorest 20,000,000 earners (all those zeros make that 20 Million).

Also, most people with an understanding of percentages are intelligent enough to know that 1% of 1000 is more than 1% of 100.

[Kevin]

Originally posted by Betarulz!
Yeah but the top 1% control as much wealth as the bottom 40% combined. And the top 13,000 richest families have almost as much income as the poorest 20,000,000 earners (all those zeros make that 20 Million).

Also, most people with an understanding of percentages are intelligent enough to know that 1% of 1000 is more than 1% of 100.

True. I'm not saying that we should pay a flat tax or anything like that. It's just unfair to have comparably confiscatory rates to those that earn more. Yeah and 36% (the top tax rate I believe) at 250K/year is a hell of a lot more than 15% of 20K per year (or whatever the lower tax brackets pay).

Of course when you cut that 1% off of the 36% it can be made to look large. The fact is though that that person worked their butts off to get where they are and deserve to make more.

Unless you believe in communism.

[Munchkin03]

Duuuuuh. The people who are truly money savvy already have accounts in places like the Netherlands Antilles. Der.

My parents have repeatedly said that the tax cuts are one of the few things they've actually benefitted from in this administration.

[Optimist Prime]

And to think I clicked on here because I was bored.

[KSigkid]

Originally posted by ktsnake
Do you think it's fair though that some people who make around $200,000 pay 60% of their income after everything is said and done (I'm talking state tax & sales tax as well) to the government while others pay comparably negligible sums?

I don't.

The top 1% pay 29% of all the taxes -- the top 5% pay over 50% of the total income tax collected. It's redistribution of the wealth. In my gut, I feel it's wrong.

I think I was misunderstood...my whole point was, even coming from a household where money was tight, I think the economists' argument was solid and that the system isn't fair.

[Kevin]

Originally posted by KSigkid
I think I was misunderstood...my whole point was, even coming from a household where money was tight, I think the economists' argument was solid and that the system isn't fair.

It seems like the tax system is set up for the benefit of the poor and the extremely wealthy (those that have the ability to avoid taxes through massive tax loopholes and corruption). I don't think that's really a secret.

The folks that get hurt the most are the upper-middle class folks that are right on the edge of the highest tax bracket and especially the folks in the 2nd highest tax bracket. Those are the folks that fund our government and social welfare programs though.

I wonder what percentage of their income folks like Bill Gates actually gave to the IRS in the form of a check? My guess is that it's not very significant (for them) if anything at all.

[PhiPsiRuss]

Originally posted by Munchkin03
Duuuuuh. The people who are truly money savvy already have accounts in places like the Netherlands Antilles. Der.

I really wish that more people understood this. You can't tax the utra-rich unless they consent because they can live anywhere, and move their money anywhere.