Tax Cuts

[erynthered]

Sometimes politicians, journalists and others exclaim; "It's just a tax cut for the rich!" and it is just accepted to be fact, without questioning it. But what does that really mean?

 

 

 

Just in case you are not completely clear and/or do not understand this issue, the following should help, if you are a reasonable person.

 

Let's put tax cuts in terms everyone can understand.

 

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 on 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 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 everybody'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 inste ad 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 somewhere else where the atmosphere is friendlier.

 

David R. Kamerschen, PhD

Professor of Economics

University of Georgia

[The Avenger]

David R. Kamerschen didn't write that - he doesn't know who did:

 

Professor's Website

 

Perhaps I'll write my inetrpretation of how the tax system works and assign authorship to an economics professor - that way people will think it's got plenty of merit.

[erynthered]

David R. Kamerschen didn't write that - he doesn't know who did:

 

Professor's Website

 

Perhaps I'll write my inetrpretation of how the tax system works and assign authorship to an economics professor - that way people will think it's got plenty of merit.

 

 

Too funny. Regardless of who wrote it, I liked it. Thought I'd share it with some of you sheep.

[Wacka]

Hey libs, facts suck, don't they!?

[meazza]

Sometimes politicians, journalists and others exclaim; "It's just a tax cut for the rich!" and it is just accepted to be fact, without questioning it. But what does that really mean?

Just in case you are not completely clear and/or do not understand this issue, the following should help, if you are a reasonable person.

 

Let's put tax cuts in terms everyone can understand.

 

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 on 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 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 everybody'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 inste ad 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 somewhere else where the atmosphere is friendlier.

 

David R. Kamerschen, PhD

Professor of Economics

University of Georgia

 

So drinks are on you now?

[JimBob2232]

ive seen that before. Not a better, more accurate depiction of our current tax system exists.

 

I find it funny when i talk to people who are against the current tax system based on the "tax cuts for the rich" philosophy, and "the rich dont pay enough" philosophy, but are adamant about having a "flat tax" where everyone pays 17% or whatever. These are the people who are so oblivious to the important topics of our time, that the country would be better served if they stayed out of the voting booths until they learn a little about how government really works. But I digress..

 

Personally, I am in favor of consumption taxes. Get rid of the income tax entirely. This way, you buy a luxury yacht, you pay taxes. The more you spend, the more you pay. This way, the folks who earn less, pay less in taxes. The drug dealer not claiming millions on his 1040, will have to pay taxes on that new pimped out escalade, or the bling. If you earn less, you pay less. If you earn more, you pay proportional to what you spend. This would also encourage much needed personal savings in this country. Its a solid plan. Course, we have to get rid of the income tax entirely...and possibly find a way to make the first $10k or so of expenditures for everyone tax free.

[erynthered]

So drinks are on you now?

 

 

According to NJSue, yes!

[molson_golden2002]

Hey libs, facts suck, don't they!?

Facts? Only on boneheaded idiot would consider this moronic parable, that BTW is falsely attributed to an economics professor, a "fact." I wish I had the time to go over everything that's wrong with this, but I don't.

[Prognastic]

Facts? Only on boneheaded idiot would consider this moronic parable, that BTW is falsely attributed to an economics professor, a "fact." I wish I had the time to go over everything that's wrong with this, but I CANT.

 

Fixed that for ya.

[Alaska Darin]

Facts? Only on boneheaded idiot would consider this moronic parable, that BTW is falsely attributed to an economics professor, a "fact." I wish I had the time to go over everything that's wrong with this, but I don't.

You don't have 10 minutes to type up some more of your moronic bull sh--? You mean because you're going to be instead surfing moveon or some other pasture for some more gems?

[molson_golden2002]

ive seen that before. Not a better, more accurate depiction of our current tax system exists.

 

I find it funny when i talk to people who are against the current tax system based on the "tax cuts for the rich" philosophy, and "the rich dont pay enough" philosophy, but are adamant about having a "flat tax" where everyone pays 17% or whatever. These are the people who are so oblivious to the important topics of our time, that the country would be better served if they stayed out of the voting booths until they learn a little about how government really works. But I digress..

 

Personally, I am in favor of consumption taxes. Get rid of the income tax entirely. This way, you buy a luxury yacht, you pay taxes. The more you spend, the more you pay. This way, the folks who earn less, pay less in taxes. The drug dealer not claiming millions on his 1040, will have to pay taxes on that new pimped out escalade, or the bling. If you earn less, you pay less. If you earn more, you pay proportional to what you spend. This would also encourage much needed personal savings in this country. Its a solid plan. Course, we have to get rid of the income tax entirely...and possibly find a way to make the first $10k or so of expenditures for everyone tax free.

LOL, sorry charlie, but this consumption tax wouldn't work. Why, think about the drug dealer you mentioned there. What does he do now, and why would his business opportunities expand after a consumption tax was started. BTW, if I pay $50 now for a sweater how much will I have to pay after the consumption tax is introduced? Just a guess, please

[JimBob2232]

LOL, sorry charlie, but this consumption tax wouldn't work. Why, think about the drug dealer you mentioned there. What does he do now, and why would his business opportunities expand after a consumption tax was started. BTW, if I pay $50 now for a sweater how much will I have to pay after the consumption tax is introduced? Just a guess, please

 

Are Crayons and Molson the same person? Wow.

 

That sweater you pay 50 bucks for, would cost you maybe 55-57 bucks with a consumption tax. The difference is that if you make 50k a year, you dont pay 8k a year in federal income taxes, like you do now (just pulling a number out).

 

As for the drug dealer...his behavior probably wouldnt change based on this...but when he went to purchase that $50k escalade, he would pay 5k extra in taxes. Right now, that money is not being taxed at the federal level. Just an example.

[molson_golden2002]

Fixed that for ya.

I can't? Don't think everyone is as dumb as you, they aren't and I certaintly am not.

First off, I find it amusing that the rich guy walks off with most of the savings but this isn't tax cuts for the rich. All while leaving the government iun debt because of this. BTW, my biggest problem with the tax cuts is not who gets them but that they only pile on more debt irresponsibly.

But really think a simple model like that can explain our complicated tax syatem and who gets what? Who benefits the most from the government? This model has everyone getting the same amount of beer. That's silly. Dick Cheney--just as an example we all know about, not picking on anyone's hero Dick-- has $55 million he made from Haliburton off government contracts. Has he paid his fair share? And BTW, Halliburton has the gall to to off shore its operation so it doesn't pay taxes on its government contracts. Wow. That's just one example among many. Who gets the most off of building infrastructure and research and development? We all benefit from those investments but some get more than others, like the guy who gets rich off of government contracts building roads or the landowner who suddenly saw his land values increase because of government action.. That model also assumes we all pay on our proportion to pay. But do we? Is the tax system fair now? The rich have a much easier time avoiding taxes, defering taxes and out and out cheating on taxes. Plus, the own so much. The top 1% owns 33% of the wealth of the country. Shouldn't they pay 33% of ALL taxes? That's just the top 1%. The bottom 80% own just 15%. I'm not complaining at all about that at all, just saying that if you guys really think the taxes should be fair, wouldn't the people who own 85% of the wealth pay 85% of the taxes?

[molson_golden2002]

Are Crayons and Molson the same person? Wow.

 

That sweater you pay 50 bucks for, would cost you maybe 55-57 bucks with a consumption tax. The difference is that if you make 50k a year, you dont pay 8k a year in federal income taxes, like you do now (just pulling a number out).

 

As for the drug dealer...his behavior probably wouldnt change based on this...but when he went to purchase that $50k escalade, he would pay 5k extra in taxes. Right now, that money is not being taxed at the federal level. Just an example.

To fund the entire federal budget off of consumption you think a sweater would only rise in price by $7? Come on.

 

The drug dealer would be getting into all sorts of new business ventures. Who the hell would want top pay taxes when the black market could provide goods tax free. Your consuption tax would be a disaster and unenforcable, to boot. That yact you talked about, who's to say that to avoid taxes, they drop the price "officiually" and pay for half of it under the table? Hell, the way businesses work, if one guy did that, the rest would have to follow that lead.

[molson_golden2002]

You don't have 10 minutes to type up some more of your moronic bull sh--? You mean because you're going to be instead surfing moveon or some other pasture for some more gems?

Why would you post on this thread anyways? You just consider taxes to be theft, so what does it matter to you how they are collected...er...ah...stolen, I mean

[JimBob2232]

I can't? Don't think everyone is as dumb as you, they aren't and I certaintly am not.

First off, I find it amusing that the rich guy walks off with most of the savings but this isn't tax cuts for the rich. All while leaving the government iun debt because of this. BTW, my biggest problem with the tax cuts is not who gets them but that they only pile on more debt irresponsibly.

But really think a simple model like that can explain our complicated tax syatem and who gets what? Who benefits the most from the government? This model has everyone getting the same amount of beer. That's silly. Dick Cheney--just as an example we all know about, not picking on anyone's hero Dick-- has $55 million he made from Haliburton off government contracts. Has he paid his fair share? And BTW, Halliburton has the gall to to off shore its operation so it doesn't pay taxes on its government contracts. Wow. That's just one example among many. Who gets the most off of building infrastructure and research and development? We all benefit from those investments but some get more than others, like the guy who gets rich off of government contracts building roads or the landowner who suddenly saw his land values increase because of government action.. That model also assumes we all pay on our proportion to pay. But do we? Is the tax system fair now? The rich have a much easier time avoiding taxes, defering taxes and out and out cheating on taxes. Plus, the own so much. The top 1% owns 33% of the wealth of the country. Shouldn't they pay 33% of ALL taxes? That's just the top 1%. The bottom 80% own just 15%. I'm not complaining at all about that at all, just saying that if you guys really think the taxes should be fair, wouldn't the people who own 85% of the wealth pay 85% of the taxes?

 

You are confusing wealth with income. We have an income tax in this country. The wealthy pay NO TAXES if they have NO INCOME.

 

But lets use your analogy...

The top one percent of wage earners should pay 33% of all taxes you say...okay...well according to the IRS, in 2004, they paid 36.89% of the taxes. (Cant find 2005 data).

The bottom 80 percent should pay 15% you say. According to the IRS, the bottom 75% (IRS uses 75% as a break point), pay 15.14%. Obviously if you expand this to the bottom 80, the total tax burden would increase (somewhere between 17 and 20 percent)

 

So, even with your logic, the rich are paying more than they need to, and the poor (the bottom 50 percent or so), are not paying their fair share.

 

Not that I agree with your logic at all, I'm just saying that even IF you use your logic, your argument, once again, is completely flawed.

[JimBob2232]

To fund the entire federal budget off of consumption you think a sweater would only rise in price by $7? Come on.

 

The drug dealer would be getting into all sorts of new business ventures. Who the hell would want top pay taxes when the black market could provide goods tax free. Your consuption tax would be a disaster and unenforcable, to boot. That yact you talked about, who's to say that to avoid taxes, they drop the price "officiually" and pay for half of it under the table? Hell, the way businesses work, if one guy did that, the rest would have to follow that lead.

 

Its one damn sweater! Using that logic, how can New Hampshire fund an entire state with a 3 dollar sweater tax?

 

Proponents of a flat tax typically use the 17% number as what would be necessary. And the effective tax rate in 2004 was about 12.1%. So I think even 17 percent is a little high...but that can be debated as a separate issue. Your 50 dollar sweater would be $57.50 with a 15% federal sales tax.

 

Black market yachts? Please. All it takes is a little enforcement by law enforcement. Heck, the entire IRS can be abolished, we can establish a much much smaller tax enforcement agency if needed. We have state consumption taxes now. How often do you think this type of behavior occurs today?

[molson_golden2002]

1) Its one damn sweater! Using that logic, how can New Hampshire fund an entire state with a 3 dollar sweater tax?

 

2) Proponents of a flat tax typically use the 17% number as what would be necessary. And the effective tax rate in 2004 was about 12.1%. So I think even 17 percent is a little high...but that can be debated as a separate issue. Your 50 dollar sweater would be $57.50 with a 15% federal sales tax.

 

3) Black market yachts? Please. All it takes is a little enforcement by law enforcement. Heck, the entire IRS can be abolished, we can establish a much much smaller tax enforcement agency if needed. We have state consumption taxes now. How often do you think this type of behavior occurs today?

1) New Hampshire isn't the federal government with its massive financial obligations

 

2) I'll bet the proponents do say that. Now do you understand why they would have an interest in low balling the figure?

 

3) Black Market everything! How often does this happen today? Often!

 

http://www.washingtonpost.com/wp-dyn/artic...4-2004Jun7.html

 

Smugglers with ties to terrorist groups are acquiring millions of dollars from illegal cigarette sales and funneling the cash to organizations such as al Qaeda and Hezbollah, federal law enforcement officials say, prompting a nationwide crackdown on black market tobacco.

 

The federal Bureau of Alcohol, Tobacco, Firearms and Explosives has more than 300 open cases of illicit cigarette trafficking -- including several with terrorist links -- up from only a handful five years ago, ATF sources said.

 

"This is a major priority for us," said Michael Bouchard, assistant director of the ATF. "The deeper we dig into these cases, the more ties to terrorism we're discovering."

 

The lucrative trafficking of cigarettes, known as cigarette diversion, is a simple scheme but difficult to stop, law enforcement officials say. The traffickers purchase a large volume of cigarettes in states where the tax is low, such as Virginia and North Carolina, transport them up Interstate 95 to states such as Maryland, New York, Pennsylvania and New Jersey and then sell them at a discount without paying the higher cigarette taxes in those states.

 

And this is just one item. You want to do this with everything! What a disaster it would be! Very bad idea

[/dev/null]

3) Black Market everything! How often does this happen today? Often!

 

http://www.washingtonpost.com/wp-dyn/artic...4-2004Jun7.html

 

Smugglers with ties to terrorist groups are acquiring millions of dollars from illegal cigarette sales and funneling the cash to organizations such as al Qaeda and Hezbollah, federal law enforcement officials say, prompting a nationwide crackdown on black market tobacco.

 

The federal Bureau of Alcohol, Tobacco, Firearms and Explosives has more than 300 open cases of illicit cigarette trafficking -- including several with terrorist links -- up from only a handful five years ago, ATF sources said.

 

"This is a major priority for us," said Michael Bouchard, assistant director of the ATF. "The deeper we dig into these cases, the more ties to terrorism we're discovering."

 

The lucrative trafficking of cigarettes, known as cigarette diversion, is a simple scheme but difficult to stop, law enforcement officials say. The traffickers purchase a large volume of cigarettes in states where the tax is low, such as Virginia and North Carolina, transport them up Interstate 95 to states such as Maryland, New York, Pennsylvania and New Jersey and then sell them at a discount without paying the higher cigarette taxes in those states.

 

And this is just one item. You want to do this with everything! What a disaster it would be! Very bad idea

Some lawyers sued the tobacco companies in the 1990s

States raised taxes on cigarettes to curb smoking

Smugglers circumvent the taxes by buying low and selling high (funny i thought that was good business practice. i guess only when you're buying/selling stocks of faceless corporations that provide income to thousands of employees)

Smuggler money goes to Al'Quade

 

Maybe we should throw those lawyers in Guantanamo for assisting Al'Quada

[molson_golden2002]

You are confusing wealth with income. We have an income tax in this country. The wealthy pay NO TAXES if they have NO INCOME.

 

But lets use your analogy...

The top one percent of wage earners should pay 33% of all taxes you say...okay...well according to the IRS, in 2004, they paid 36.89% of the taxes. (Cant find 2005 data).

The bottom 80 percent should pay 15% you say. According to the IRS, the bottom 75% (IRS uses 75% as a break point), pay 15.14%. Obviously if you expand this to the bottom 80, the total tax burden would increase (somewhere between 17 and 20 percent)

 

So, even with your logic, the rich are paying more than they need to, and the poor (the bottom 50 percent or so), are not paying their fair share.

 

Not that I agree with your logic at all, I'm just saying that even IF you use your logic, your argument, once again, is completely flawed.

We are headed down the rabbit hole here. I used wealth on purpose. First off, you were not using my argument, you changed it from wealth to income. That is very important. Just because we have an income tax in America doesn't automaticlly mean it is a correct measure of who pays. Many wealthy individuals get out of paying an "income" based tax through stock options and other ways of getting paid. Lots of their taxes are also deferred. Wouldn't that be nice if we could defer payment on most of our income for 20 years or so? And btw, using the "income" tax as a gage excludes SS taxes, local taxes etc., that's very important, and its why Conservatives like to focus just on the income tax.