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Here's How Taxes Really Work

Discussion in 'Political Discussion' started by Wolfpack, Jan 26, 2010.

  1. Wolfpack

    Wolfpack Banned

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    Since there are individuals in here that think the top marginal tax rate should be 91%, I thought I would post this anecdote about how taxes really work. Just something I once saw online somewhere. Liberals are warned to look away because I know how terrified they are that they might learn something.


    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.

    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 who 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, 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.
     
  2. Leave No Doubt

    Leave No Doubt PatsFans.com Supporter PatsFans.com Supporter

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    Well done!
     
  3. Patters

    Patters Moderator Staff Member PatsFans.com Supporter

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    FYI, has been around the internet for awhile, but the original author is unknown:

    snopes.com: How Taxes Work

    That said, no one I know of is advocating a marginal tax rate of 90% for both earned and unearned income. Obviously, regulating capital gains and providing tax loopholes and investment incentives is part of the way tax policy is used to alter behavior, something the simplistic parable fails to address. Under Ike and Kennedy, the wealthy were encouraged to invest more and tax loopholes were used to benefit various regions and new industries, such as those behind NASA.
     
    Last edited: Jan 26, 2010
  4. Wolfpack

    Wolfpack Banned

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    Wow. You should be on CSI. I wrote "just something I once saw online somewhere" and you took that statement and actually deduced on your own that the anecdote "has been around the internet for a while." Splendid job, Sherlock.
    Well then what exactly did you mean when you said "I like Ike" in a thread which begins with a poll stating Eisenhower's top marginal tax rate was 91%?
    It's pretty funny how you complain about loopholes in one thread and then use them as a defense of your 91% tax rate policy in another. :rolleyes:
     
    Last edited: Jan 27, 2010
  5. Patters

    Patters Moderator Staff Member PatsFans.com Supporter

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    It was not a matter of investigating. It's a matter of making it clear that the OP by ommission appeared to take credit for someone else's work. As someone who for many years made his living by writing, I think it's important to make clear what's yours and what isn't. I believe it's wrong to take credit for other people's work. You didn't even put quotes around what you appear to have cut and pasted.

    Where did I complain about loopholes? Please don't put words into my mouth. I'm all for loopholes when used in ways I consider constructive. For instance, charitable giving is a tax loophole that I suspect most Americans favor.
     
    Last edited: Jan 27, 2010

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