The Truth about Tax Cuts. Hope this makes it clear for you Democrats

shiner

Lifer
Jul 18, 2000
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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 somethinglike 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.

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 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 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. He pointed 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 something important. They were $52 short!

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.
 

Chadder007

Diamond Member
Oct 10, 1999
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WeRd This reminds me of a bumper sticker. "Work harder: Millions of people on welfare are counting on you"
 

vi edit

Elite Member
Super Moderator
Oct 28, 1999
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Restaurants don't have deductions and tax shelters.
 

woodie1

Diamond Member
Mar 7, 2000
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Very well put - do you really think the "tax and spend" crowd will understand?
 

GoingUp

Lifer
Jul 31, 2002
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That's a great example. I always wondered what peoples arguements against the cuts were. If you pay more in taxes, you should get more back. I remember seeing the political cartoonists rail on the plan about how the rich would get back enough to buy a car, but I actually computed it out, and after the cuts, the tax burden is on the rich even more.....
 

TheOmegaCode

Platinum Member
Aug 7, 2001
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You forgot to mention that person number 10 went home and wrote off the meal as a buisness dinner ;)
 

flavio

Diamond Member
Oct 9, 1999
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Sounds like the first four men just ate crackers and the last couple had too many cocktails.
 

dullard

Elite Member
May 21, 2001
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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.
There are many other ways of doing it too. It is impossible to satisfy everyone at all times. The last tax cut is similar to the dinner cut example you gave. Although your dinner cuts were a little odd:
5th man cut 100%, 6th man cut 33%, 7th man cut 29%, 8th man cut 25%, 9th man cut 33%, 10th man's cut was 12%.
The rollercoaster cuts are a bit odd (the ninth man's cut is out of line).

The democrats wanted something slightly different. Something more like this: cut everyone's bill by $4, if that caused you to go negative, too bad you don't earn anything. The result would be:
Men #1-#6 pay nothing, Man #7 pays $3, #8 pays $8, #9 pays $14, #10 pays $55.
I won't argue whether this was more or less fair than you option above. But this is basically what the democrats wanted.

There is one problem with your last statement, there isn't much place for the wealthy to go. After the attack in your dinner example the wealthy left, they cannot easilly leave America. Sure some rich people might be able to abandon their home/family/friends/etc. But the wealthy businesses really cannot. Especially when you consider that the taxes in many other countries is dramatically higher. So why would the wealthy leave just to pay more tax elsewhere.


 

CPA

Elite Member
Nov 19, 2001
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Actually Shiner, I don't think this example is accurate enough. In today's tax environment, the first four would have actually been paid extra (earned income credit) for not paying anything.
 

Zenmervolt

Elite member
Oct 22, 2000
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Hmmm...

First four men get a 0% cut, which is OK since they pay nothing.
Fifth man gets a 100% cut
Sixth man gets a 33.3% cut
Seventh man gets a 28.6% cut
Eighth man gets a 25% cut
Ninth man gets a 33.3% cut
Tenth man gets an 11.9% cut

Seems to me that the tenth man is the one getting the shaft.

ZV
 

shiner

Lifer
Jul 18, 2000
17,116
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Originally posted by: CPA
Actually Shiner, I don't think this example is accurate enough. In today's tax environment, the first four would have actually been paid extra (earned income credit) for not paying anything.
True, true....

 

ThisIsMatt

Banned
Aug 4, 2000
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So why not a flat rate national sales tax, with the possibility of certain tax brackets?

You make a lot of money? That's fine. You spend a lot of money, you pay more taxes.

You make little money? You spend little money, you pay little taxes...
 

HendrixFan

Diamond Member
Oct 18, 2001
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Actually, when Medicare and SS are included as tax burdens, along with FIT, the middle class pay a higher percentage of their earnings towards taxes than the richest 10% of Americans, after deductions take place.

So basically your numbers are invalid.
 

ElFenix

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Super Moderator
Mar 20, 2000
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Originally posted by: ThisIsMatt
So why not a flat rate national sales tax, with the possibility of certain tax brackets?

You make a lot of money? That's fine. You spend a lot of money, you pay more taxes.

You make little money? You spend little money, you pay little taxes...

a sales tax is going to be regressive because you spend a larger % of your income, rather than saving or investing it. and regressive tax schemes would wreak havoc on the economy. a slightly progressive tax scheme is the best, but coordinating all the states and municipalities together to make it that way is darn near impossible, so they just overcompensate at the federal level, so you get some places that have two progressive income taxes and you get other that have a progressive income tax with regressive sales tax...

oh, and shiner, really rich people don't pay income tax.
 

shifrbv

Senior member
Feb 21, 2000
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Hopefully, the 10th man will be a moral Christian and adhere to the teachings of Christ and follow the tenet that "to whom much is given, much is expected". Since society has no way to ensure that the wealthy among us will indeed follow this code (especially in these times), better men than the likes of those in this thread made sure it was sealed through law. Therefore when Caesar asks, they have no choice but to anty up. Just as Christ would have advised.
 

shiner

Lifer
Jul 18, 2000
17,116
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Originally posted by: ElFenix
Originally posted by: ThisIsMatt
So why not a flat rate national sales tax, with the possibility of certain tax brackets?

You make a lot of money? That's fine. You spend a lot of money, you pay more taxes.

You make little money? You spend little money, you pay little taxes...

a sales tax is going to be regressive because you spend a larger % of your income, rather than saving or investing it. and regressive tax schemes would wreak havoc on the economy. a slightly progressive tax scheme is the best, but coordinating all the states and municipalities together to make it that way is darn near impossible, so they just overcompensate at the federal level, so you get some places that have two progressive income taxes and you get other that have a progressive income tax with regressive sales tax...

oh, and shiner, really rich people don't pay income tax.

Sorry to see that you've bought into that lie. I have an uncle who is a multi, multi millionaire and he pays tons in taxes...so much so that it makes me sick to hear how much he pays every year.

 

shiner

Lifer
Jul 18, 2000
17,116
1
0
Originally posted by: shifrbv
Hopefully, the 10th man will be a moral Christian and adhere to the teachings of Christ and follow the tenet that "to whom much is given, much is expected". Since society has no way to ensure that the wealthy among us will indeed follow this code (especially in these times), better men than the likes of those in this thread made sure it was sealed through law. Therefore when Caesar asks, they have no choice but to anty up. Just as Christ would have advised.
I doubt Jesus would have worked for the IRS.

 

HendrixFan

Diamond Member
Oct 18, 2001
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One other thing. The way Bush's tax cut works (I dont have the numbers handy) is the first bracket gets a reduction of a certain amount. THe next bracket gets the SAME reduction, plus another LARGER reduction for amount of income made in the second bracket. And so on until the last bracket, where they get each and every bracket reduction within those income levels, then they get an even larger reduction for the last one.

In your senario then, the richest man would save a dollar like the first guy, plus a dollar like the second guy, two more like the third guy, three like the fourth guy, six like the fifth guy, plus his own seven for his bracket. That means he saves $20, meaning he is getting an "equal" 33% reduction while middle class man (#7) gets a 28% reduction and (#8) gets a 25% reduction.
 

ElFenix

Elite Member
Super Moderator
Mar 20, 2000
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Originally posted by: shinerburke
Originally posted by: ElFenix
Originally posted by: ThisIsMatt
So why not a flat rate national sales tax, with the possibility of certain tax brackets?

You make a lot of money? That's fine. You spend a lot of money, you pay more taxes.

You make little money? You spend little money, you pay little taxes...

a sales tax is going to be regressive because you spend a larger % of your income, rather than saving or investing it. and regressive tax schemes would wreak havoc on the economy. a slightly progressive tax scheme is the best, but coordinating all the states and municipalities together to make it that way is darn near impossible, so they just overcompensate at the federal level, so you get some places that have two progressive income taxes and you get other that have a progressive income tax with regressive sales tax...

oh, and shiner, really rich people don't pay income tax.

Sorry to see that you've bought into that lie. I have an uncle who is a multi, multi millionaire and he pays tons in taxes...so much so that it makes me sick to hear how much he pays every year.

hes not hiding his income real well if thats all income taxes... of course it only works if you're owner or high up enough that you regularly speak with the owner... then you can get paid mostly in benefits and equity, very little in salary. company car, company house, etc. then you're mostly paying capital gains. if hes not in a position to do that then hes almost an exception to the rule, but if he is in that position and hes not doing that... well, he needs a better attorney/accountant.