Taxes, the reality from my eyes

War.mongeR1 · 02-01-2008, 04:04 PM

I hate to post something I got from an e-mail, but this is the best explanation of taxing the rich that I've ever seen. I'm by no means rich, but I am in a sickingly high tax bracket, so I understand this entirely:

Quote:

The rich get all the breaks. Listen to what is being said when politicians talk about taxes.

Suppose that every day, ten men go out for beer and 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 would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Because you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20. Drinks for the ten of you now cost just $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 drink for free. But what about the other six men, the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'

They realized that $20 divided by six is $3.33. But if they subtracted that from every body's share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar 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 pay $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 drink 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 I!"

"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? 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 drinks, so the nine sat down and had beers 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 anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, PH.D.
Professor of Economics
University of Georgia

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.

Discuss...

MagnaCentipede · 02-01-2008, 08:45 PM

"For those who understand, no explanation is needed. For those who do not understand, no explanation is possible."

After that, what's to discuss?

ScratchMonkey · 02-01-2008, 08:49 PM

The problem is innumeracy. The average voter can't handle math. Even many "educated" people can't.

**Gambit7** · 02-01-2008, 10:07 PM

No, the problem is that 33% of my salary hurts way more then 33% of my boss'. It also stings when you realize that he doesnt actually ever pay 33%, but I do... nor does he want or require soc. security.

The taxes in this country just plain arent scaled properly across the boards. And even if that's done right, the inherent loopholes left in the system are exploited by those with the resources to do so. Basically, middle class and slightly upper-middle class folk in this country are carrying nearly the entire load (i.e. they're the ones actually buying the drinks). You might THINK the rich are buying the drinks, but in reality they're given a coupon for every drink they buy that they can redeem to end up paying nothing later on, or even getting PAID to buy everyone drinks.

I find that beer drinking analogy quite ludicrous btw... if not creative

MagnaCentipede · 02-01-2008, 10:56 PM

"No, the problem is that 33% of my salary hurts way more then 33% of my boss'."

HALT! You're spinning it right from the start. You're using the word "hurt" out of context to impart an emotional affectation.

If you set the bar at 33%, you set the bar at 33%. If you set the bar at $X, you set the bar at $X. That's objective.

A progressive tax system is what we have and leads to the beer problem. Tax money is supposed to pay for the services the government provides the payer. The wealthy man doesn't get a whole lot more from the G than the poor man, so why should he pay more? Because he has more? Here, let me hit you with this bat because you are successful.

**Gambit7** · 02-02-2008, 12:27 AM

There's nothing "progressive" about our tax system. Regressive is more like it.

ScratchMonkey · 02-02-2008, 09:01 AM

See the chart on the right side of the page here:

http://en.wikipedia.org/wiki/Taxatio...x_distribution

Note the last line: The bottom 50% pay only 3% of all Federal taxes. Exempt those people and you free up a huge amount of labor currently stuck filing onerous forms. (Recall that the original income tax of a century ago was supposed to apply only to the ultra-rich, and that the withholding introduced in WWII was supposed to be a temporary war-time measure.)

Kerostasis · 02-02-2008, 01:47 PM

--The forms aren't that onerous, and the closer to the bottom of the income scale you are, the simpler the form gets. Anyone who cant fill out a 1040-EZ has problems.

--The mere fact that someone will not actually owe any taxes does not also imply they will not have to file. My last two years tax returns have resulted in a total tax owed of $0, but I had to go through a couple pages of forms in order to prove it. Lowering the tax rate to try to get more people in the "wont pay anything" category is unlikely to make a significant reduction in amount of paperwork filed.

--Any change that results in less than 50% of the electorate actually paying taxes is a BAD thing for future debates/votes on tax rates. When 52% of the electorate pays no taxes at all, guess which way they will vote on tax increases for the other 48%?

**El_Gringo_Grande** · 02-02-2008, 03:17 PM

Quote:

Originally Posted by MagnaCentipede

"No, the problem is that 33% of my salary hurts way more then 33% of my boss'."

HALT! You're spinning it right from the start. You're using the word "hurt" out of context to impart an emotional affectation.

If you set the bar at 33%, you set the bar at 33%. If you set the bar at $X, you set the bar at $X. That's objective.

A progressive tax system is what we have and leads to the beer problem. Tax money is supposed to pay for the services the government provides the payer. The wealthy man doesn't get a whole lot more from the G than the poor man, so why should he pay more? Because he has more? Here, let me hit you with this bat because you are successful.

No, he is not spinning it, it is the truth.

I have gone from poverty to upper middle class in a short period of time and it is very true. The taxes even if they are a smaller percentage hurt much more when you make less.

Of course "hurt" can be interpreted many different ways. Hurting because you can't afford the huge house with all the fixins can be just as psychologically painful as the hurting caused because you have to buy your kids clothing at a second hand store.

When I finished filling out my forms this year I looked at what I paid and it did hurt. Knowing 29.4 percent of my money went to state and federal coffers sucked. Especially when I realized all the cool things I could buy with that money. Or all the money I could put in a savings account. etc

But then I think back to ten or so years ago and the $1,000 dollars that went to the government actually hurt much, much more. That could have paid for my daughters medicine or fixed the old broken down car sitting in the driveway. Or allowed me to buy some extra clothes for the boy I was responsible for at the time. It could have meant finding a rental property that had proper heating and fewer drafts.

The fact is once you get past a certain income level taxes really only affect lifestyle, not living. The two are not equal.

xTYBALTx · 02-02-2008, 10:51 PM

In economics, a negative income tax (abbreviated NIT) is a method of tax reform that has been discussed among economists but never fully implemented. It was developed by Juliet Rhys-Williams in the 1940s and later by United States economist Milton Friedman in 1962 in Capitalism and Freedom. Negative income taxes can implement or supplement a guaranteed minimum income system.

A negative income tax would replace the current progressive income tax system used throughout most of the Western world. This would be replaced by a flat tax of, say, 25%, but each taxpayer would also be given $10,000 by the government. Thus a person earning only $4000 per year would pay $1000 in taxes for a net income of $13,000.
$10,000 + $4000 - $1000 = $13,000 net income (Overall, they would receive a net gain of $9,000 from the government.)
A person making $40,000 would be at the break-even point, essentially paying no taxes.
$10,000 + $40,000 - $10,000 = $40,000 net income
A person making $1,000,000 per year would pay close to the full 25% tax.
$10,000 + $1,000,000 - $250,000 = $760,000 net income.

http://en.wikipedia.org/wiki/Negative_income_tax

**RandomGuy** · 02-02-2008, 11:30 PM

http://www.snopes.com/business/taxes/howtaxes.asp

Kerostasis · 02-03-2008, 12:31 AM

Quote:

Originally Posted by xTYBALTx

In economics, a negative income tax (abbreviated NIT) is a method of tax reform that has been discussed among economists but never fully implemented. It was developed by Juliet Rhys-Williams in the 1940s and later by United States economist Milton Friedman in 1962 in Capitalism and Freedom. Negative income taxes can implement or supplement a guaranteed minimum income system.

While NIT sounds good in theory, the bolded part results in a very suboptimal set of incentives for low income workers: If you can make the guaranteed minimum wage without ever showing up to work, why bother?

I much prefer the EIC (Earned Income Credit) system already in place in our taxes. Basically that says that low-income workers who make the choice to work are given a NIT proportional to the amount they earned, so the more they work, the more tax credits they get.

My only complaint about EIC is that you have to be 25 to qualify, and I'm only 23

.

xTYBALTx · 02-03-2008, 02:39 AM

Quote:

Originally Posted by Kerostasis

While NIT sounds good in theory, the bolded part results in a very suboptimal set of incentives for low income workers: If you can make the guaranteed minimum wage without ever showing up to work, why bother?

I much prefer the EIC (Earned Income Credit) system already in place in our taxes. Basically that says that low-income workers who make the choice to work are given a NIT proportional to the amount they earned, so the more they work, the more tax credits they get.

My only complaint about EIC is that you have to be 25 to qualify, and I'm only 23

.

If you don't work at all, you get $10,000. If you make $10,000 through work, you get $10,000 + $10,000 = $20,000. So that's why you'd "bother."

Kerostasis · 02-03-2008, 03:46 AM

A) It would be $10,000 + (10,000 * .75) = $17,500, not $20,000 cause of taxes.

B) You'd be surprised how many people would opt for the lower salary and not having to work. Not everyone, perhaps not even the majority, but enough. Certainly a lot more than if the alternative to working was having $0 income and begging.

MagnaCentipede · 02-03-2008, 03:47 AM

10k is very livable. Ask a college student.

02-01-2008, 08:45 PM	#2 (permalink)
MagnaCentipede Join Date: May 2007 Posts: 1,957	Re: Taxes, the reality from my eyes "For those who understand, no explanation is needed. For those who do not understand, no explanation is possible." After that, what's to discuss? __________________

02-01-2008, 08:49 PM	#3 (permalink)
ScratchMonkey Join Date: Aug 2005 Location: San Pablo, California Posts: 4,565	Re: Taxes, the reality from my eyes The problem is innumeracy. The average voter can't handle math. Even many "educated" people can't. __________________

02-01-2008, 10:07 PM	#4 (permalink)
Gambit7 Join Date: Aug 2004 Location: Hollywood, FL Age: 32 Posts: 2,198	Re: Taxes, the reality from my eyes No, the problem is that 33% of my salary hurts way more then 33% of my boss'. It also stings when you realize that he doesnt actually ever pay 33%, but I do... nor does he want or require soc. security. The taxes in this country just plain arent scaled properly across the boards. And even if that's done right, the inherent loopholes left in the system are exploited by those with the resources to do so. Basically, middle class and slightly upper-middle class folk in this country are carrying nearly the entire load (i.e. they're the ones actually buying the drinks). You might THINK the rich are buying the drinks, but in reality they're given a coupon for every drink they buy that they can redeem to end up paying nothing later on, or even getting PAID to buy everyone drinks. I find that beer drinking analogy quite ludicrous btw... if not creative __________________

02-01-2008, 10:56 PM	#5 (permalink)
MagnaCentipede Join Date: May 2007 Posts: 1,957	Re: Taxes, the reality from my eyes "No, the problem is that 33% of my salary hurts way more then 33% of my boss'." HALT! You're spinning it right from the start. You're using the word "hurt" out of context to impart an emotional affectation. If you set the bar at 33%, you set the bar at 33%. If you set the bar at $X, you set the bar at $X. That's objective. A progressive tax system is what we have and leads to the beer problem. Tax money is supposed to pay for the services the government provides the payer. The wealthy man doesn't get a whole lot more from the G than the poor man, so why should he pay more? Because he has more? Here, let me hit you with this bat because you are successful. __________________

02-02-2008, 12:27 AM	#6 (permalink)
Gambit7 Join Date: Aug 2004 Location: Hollywood, FL Age: 32 Posts: 2,198	Re: Taxes, the reality from my eyes There's nothing "progressive" about our tax system. Regressive is more like it. __________________

02-02-2008, 09:01 AM	#7 (permalink)
ScratchMonkey Join Date: Aug 2005 Location: San Pablo, California Posts: 4,565	Re: Taxes, the reality from my eyes See the chart on the right side of the page here: http://en.wikipedia.org/wiki/Taxatio...x_distribution Note the last line: The bottom 50% pay only 3% of all Federal taxes. Exempt those people and you free up a huge amount of labor currently stuck filing onerous forms. (Recall that the original income tax of a century ago was supposed to apply only to the ultra-rich, and that the withholding introduced in WWII was supposed to be a temporary war-time measure.) __________________

02-02-2008, 10:51 PM	#10 (permalink)
xTYBALTx Join Date: Aug 2005 Posts: 3,919	Re: Taxes, the reality from my eyes In economics, a negative income tax (abbreviated NIT) is a method of tax reform that has been discussed among economists but never fully implemented. It was developed by Juliet Rhys-Williams in the 1940s and later by United States economist Milton Friedman in 1962 in Capitalism and Freedom. Negative income taxes can implement or supplement a guaranteed minimum income system. A negative income tax would replace the current progressive income tax system used throughout most of the Western world. This would be replaced by a flat tax of, say, 25%, but each taxpayer would also be given $10,000 by the government. Thus a person earning only $4000 per year would pay $1000 in taxes for a net income of $13,000. $10,000 + $4000 - $1000 = $13,000 net income (Overall, they would receive a net gain of $9,000 from the government.) A person making $40,000 would be at the break-even point, essentially paying no taxes. $10,000 + $40,000 - $10,000 = $40,000 net income A person making $1,000,000 per year would pay close to the full 25% tax. $10,000 + $1,000,000 - $250,000 = $760,000 net income. http://en.wikipedia.org/wiki/Negative_income_tax __________________ A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek "$250,000 a year won't get me to Central Park West."

02-02-2008, 11:30 PM	#11 (permalink)
RandomGuy Join Date: May 2003 Location: K-W, Ont. Age: 27 Posts: 1,742	Re: Taxes, the reality from my eyes http://www.snopes.com/business/taxes/howtaxes.asp

02-03-2008, 03:47 AM	#15 (permalink)
MagnaCentipede Join Date: May 2007 Posts: 1,957	Re: Taxes, the reality from my eyes 10k is very livable. Ask a college student. __________________

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