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The Tax System Explained! (ANT will love this!)
 

manbearpig's picture
CO
(Neanderthal, 3,029
 
Points)
 on 4/26/12 at 12:56pm

Our Tax System Explained: Bar Stool Economics
>
> 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. '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 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 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 got' '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, ladies and gentlemen, 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.

-MBP
SECfinance's picture

Welcome to 2007.

IB
(King Kong, 1,432
 
Points)
 on 4/26/12 at 1:00pm

Welcome to 2007.

manbearpig's picture

lol, oops. just saw it now

CO
(Neanderthal, 3,029
 
Points)
 on 4/26/12 at 1:00pm

lol, oops. just saw it now for the first time.

-MBP

TNA's picture

This is exactly why whenever

O
(Human, 13,711
 
Points)
 on 4/26/12 at 1:15pm

This is exactly why whenever people talk about tax cuts for the rich I correct them and tell them they are tax cuts for those who pay the majority of taxes.

Unfortunately living in this country and paying nothing to the Federal Government isn't enough for some people.

It really is just childish logic and ethics. But oh well, if they were intelligent to begin with they wouldn't be the ones asking for a hand out.

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In reply to TNA
manbearpig's picture

TNA: This is exactly why

CO
(Neanderthal, 3,029
 
Points)
 on 4/26/12 at 1:22pm
TNA:

This is exactly why whenever people talk about tax cuts for the rich I correct them and tell them they are tax cuts for those who pay the majority of taxes.

Unfortunately living in this country and paying nothing to the Federal Government isn't enough for some people.

It really is just childish logic and ethics. But oh well, if they were intelligent to begin with they wouldn't be the ones asking for a hand out.

What do you say to this?

Progressive version:

Suppose that every day, ten people go out for beer. A lot of beer. If they paid their bill the way fiscal Conservatives WANT us to pay our taxes (21% rate for everyone, which would amount to an enormous tax reduction for the richest and the largest tax increase in history for the poorest), it would go something like this:

The first four people (the poorest) make $50 a day and would pay $11.50, leaving them with $38.50 to survive.
The fifth makes $200 a day and would pay $42, leaving her with just $158.
The sixth makes $300 and would pay $63.
The seventh makes $400 and would pay $84.
The eighth makes $500 and would pay $105.
The ninth makes $1,000 and would pay $210, leaving her with $790.
The tenth man (the richest) makes $10,000 and would pay $2,100, leaving him with $7,900.

So, that's what they decided to do. The ten people drank in the bar every day under this arrangement. The poor had to sacrifice birthday gifts for their children and healthcare for one member of their family in order to buy that beer. The wealthy still enjoyed their healthcare, college, 401k retirement savings, their gated home and clean and healthy organic lifestyle, and their yacht, but they couldn’t afford a second yacht because of that beer!

One day, the bar owner threw them a curve. Instead of paying 21% of their income each for the beer, they could each pay 15%! The bar owner proceeded to work out the amounts each should pay.

And so:

The first four people (the poorest, most strapped for cash) save $3 (6% savings).
The fifth saves $12 (6% savings).
The sixth saves $18 (6% savings).
The seventh saves $24 (6% savings).
The eighth saves $30 (6% savings).
The ninth saves $60 (6% savings).
The tenth saves $600 (6% savings).

Each of the people had more expendable income than before. But while the poorest struggled to buy just one additional teddy bear for the new baby with the savings, the rich saved enough that they actually could afford that second yacht after all! In fact, they saved many times the sum of the poor people’s income, and that was just their savings!

However, despite the additional income, not everyone was better off. Even though the beer was cheaper, the healthcare assistance for the poor disappeared, the public transportation system in America deteriorated, the country could no longer invest in medical research or fund job training centers or police stations around the country. So, in actuality, the poor, who were the financially worst off to begin with, became even worse off, despite the extra $3 bucks a day they saved. Working class people also happen to represent the majority of America. Despite the crumbling surrounding community, the small rich minority were astronomically better off! Their healthcare rates didn’t change, they kept their Lexus, they could still afford college, and although they decided against buying the second yacht, because, why would you need two?, they were able to throw even more money into derivatives!

And that, boys and girls, journalists and college professors, is how our fiscal conservatives want our tax system to work. Everyone pays the exact same percentage of their income in taxes, the people who pay the highest taxes are the only ones to benefit from a tax reduction, while the poor, struggling to get by to begin with, struggle even more regardless of whether taxes go up or down.

No one is attacking anyone for “being wealthy,” as some assert. (I wish I were rich, and I certainly wouldn't complain about my taxes if I were.) But the rich got rich in America, on the shoulders of their working class employees and using the infrastructure the working class have built and the security and structure America provides. Numerically equal tax rates do not amount to equal burden. It does not amount to "fairness." It utterly ignores the common good, and it is the antithesis of equal opportunity. The world just don’t work that way.

Nobody Special
University of New Hampshire alumnus
For those who understand, no explanation is needed.
For those who do not understand, just think about it. You’ll get there. Doesn’t take a PhD, just some perspective.

-MBP

TNA's picture

I say it is bullshit. I've

O
(Human, 13,711
 
Points)
 on 4/26/12 at 2:08pm

I say it is bullshit. I've never been for a flat tax and I don't see the point of taxing the very poor because you will get nothing out of them. What I do want to see is a simple tax system, devoid of socially manipulative deductions and credits.

Honestly, my biggest issue is that half this country pays zero in fed taxes, but gets upset when the only people who do pay taxes get a tax cut. The rich got rich because of laws and stability. That is what government is formed for. No one is talking about zero taxation.

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Abdel's picture

(No subject)

O
(Neanderthal, 2,064
 
Points)
 on 4/26/12 at 2:09pm
TNA's picture

Besides, I thought we were

O
(Human, 13,711
 
Points)
 on 4/26/12 at 2:09pm

Besides, I thought we were talking about taxation and revenue generation. All these poor pity arguments have nothing to do with things. The rich deserve everything they have and should not be robbed based on a child's logic.

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Boothorbust's picture

By the by. Professor

O
(King Kong, 1,130
 
Points)
 on 4/26/12 at 2:13pm

By the by. Professor Kamerschen did not write this. This has been variously attributed to Accounting professionals, b-school professors, economists, etc. I will not make a comment on the validity of the arguments, but when people feel the need to falsely attribute an authority to a piece of work, you should at least start asking questions.

BTbanker's picture

Moral of the story, don't be

IB
 
Points)
 on 4/26/12 at 2:19pm

Moral of the story, don't be poor.

"A man generally has two reasons for doing anything. One that sounds good, and the real one." - J.P. Morgan

In reply to Connor
TNA's picture

Connor: Moral of the story,

O
(Human, 13,711
 
Points)
 on 4/26/12 at 2:25pm
Connor:

Moral of the story, don't be poor.

BINGO

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Anomanderis's picture

I agree, a flat tax is

ST
(Orangutan, 357
 
Points)
 on 4/26/12 at 2:32pm

I agree, a flat tax is probably not the most logical. It's the tax breaks for special interests that frustrates the most. I'm happy to pay taxes if I get rich, but I'd hate to pay more taxes than say - other people with the same wealth as I have simply because they have been able to pay off some legislators to reduce their taxes.

My issue with tax cuts is that it gets touted as "enabling entrepreneurs". This argument assumes that all entrepreneurs are already wealthy, since the cuts end up benefiting mostly the wealthy.
It would be excellent if there was a system that could guarantee equality of opportunity, but that would require too many things to be taken into consideration, and would require unnecessarily lengthy legislation as well as infrastructure (big government).

Edit: And what Connor said.

But Rhaegar fought valiantly, Rhaegar fought nobly, Rhaegar fought bravely.

And Rhaegar died.

TNA's picture

I resent tax breaks for

O
(Human, 13,711
 
Points)
 on 4/26/12 at 2:34pm

I resent tax breaks for having kids, owning a home, getting married, donating money, etc. Government should not be in the business of trying to manipulate my behavior or reward people for theirs.

Tax income and be done with it.

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Ryanloop's picture

manbearpig: > For those who

 
Points)
 on 4/26/12 at 2:36pm
manbearpig:

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

Thank you very much for metaphor and especially the phrase that we can apply many times during our working days and life in general

NextPay is an innovative global Secure Online Processing company

In reply to TNA
BTbanker's picture

TNA: I resent tax breaks for

IB
 
Points)
 on 4/26/12 at 2:39pm
TNA:

I resent tax breaks for having kids, owning a home, getting married, donating money, etc. Government should not be in the business of trying to manipulate my behavior or reward people for theirs.

Tax income and be done with it.

I wonder what the impact of eradicating tax breaks for donations would have on charities haha... My guess is that it wouldn't be pleasant.

"A man generally has two reasons for doing anything. One that sounds good, and the real one." - J.P. Morgan

Anomanderis's picture

Question Ant - what's your

ST
(Orangutan, 357
 
Points)
 on 4/26/12 at 2:41pm

Question Ant - what's your opinion on inheritance taxes?

I'm of the opinion that inheritance is income and should be taxed as such(I actually think it should be well taxed otherwise it could lead to a system that reduces competiveness).

But Rhaegar fought valiantly, Rhaegar fought nobly, Rhaegar fought bravely.

And Rhaegar died.

TNA's picture

I am against inheritance

O
(Human, 13,711
 
Points)
 on 4/26/12 at 2:45pm

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In reply to Anomanderis
TNA's picture

Anomanderis: Question Ant -

O
(Human, 13,711
 
Points)
 on 4/26/12 at 2:50pm

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In reply to TNA
manbearpig's picture

TNA: I am against inheritance

CO
(Neanderthal, 3,029
 
Points)
 on 4/26/12 at 3:04pm

-MBP

Anomanderis's picture

Ant - this constant reference

ST
(Orangutan, 357
 
Points)
 on 4/26/12 at 2:56pm

But Rhaegar fought valiantly, Rhaegar fought nobly, Rhaegar fought bravely.

And Rhaegar died.

Abdel's picture

(No subject)

O
(Neanderthal, 2,064
 
Points)
 on 4/26/12 at 2:59pm
TNA's picture

Government is a creation of

O
(Human, 13,711
 
Points)
 on 4/26/12 at 3:01pm

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TNA's picture

OMG ABDEL! Completely agree.

O
(Human, 13,711
 
Points)
 on 4/26/12 at 3:03pm

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In reply to manbearpig
TNA's picture

manbearpig: TNA: I am

O
(Human, 13,711
 
Points)
 on 4/26/12 at 3:05pm

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killfrankgoreshead's picture

National defense - isn't that

(Baboon, 106
 
Points)
 on 4/26/12 at 3:06pm
Anomanderis's picture

Incidentally, I totally agree

ST
(Orangutan, 357
 
Points)
 on 4/26/12 at 3:07pm

But Rhaegar fought valiantly, Rhaegar fought nobly, Rhaegar fought bravely.

And Rhaegar died.

In reply to TNA
Anomanderis's picture

TNA: manbearpig: TNA: I

ST
(Orangutan, 357
 
Points)
 on 4/26/12 at 3:08pm

But Rhaegar fought valiantly, Rhaegar fought nobly, Rhaegar fought bravely.

And Rhaegar died.

manbearpig's picture

http://www.zerohedge.com/news

CO
(Neanderthal, 3,029
 
Points)
 on 4/26/12 at 3:08pm

-MBP

In reply to TNA
Abdel's picture

TNA: OMG ABDEL! Completely

O
(Neanderthal, 2,064
 
Points)
 on 4/26/12 at 3:09pm
In reply to Anomanderis
TNA's picture

Anomanderis: Incidentally, I

O
(Human, 13,711
 
Points)
 on 4/26/12 at 3:11pm

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In reply to Anomanderis
TNA's picture

Anomanderis: TNA: manbear

O
(Human, 13,711
 
Points)
 on 4/26/12 at 3:13pm

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In reply to manbearpig
BTbanker's picture

manbearpig: TNA: I am

IB
 
Points)
 on 4/26/12 at 3:20pm

"A man generally has two reasons for doing anything. One that sounds good, and the real one." - J.P. Morgan

Anomanderis's picture

Very true. But you can at

ST
(Orangutan, 357
 
Points)
 on 4/26/12 at 3:20pm

But Rhaegar fought valiantly, Rhaegar fought nobly, Rhaegar fought bravely.

And Rhaegar died.

In reply to Connor
manbearpig's picture

Connor: manbearpig: TNA:

CO
(Neanderthal, 3,029
 
Points)
 on 4/26/12 at 3:23pm

-MBP

In reply to manbearpig
Anomanderis's picture

manbearpig: http://www.zerohe

ST
(Orangutan, 357
 
Points)
 on 4/26/12 at 3:23pm

But Rhaegar fought valiantly, Rhaegar fought nobly, Rhaegar fought bravely.

And Rhaegar died.

TNA's picture

I don't understand the living

O
(Human, 13,711
 
Points)
 on 4/26/12 at 4:10pm

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TheKing's picture

Only question really is: how

O
 
Points)
 on 4/26/12 at 4:15pm

Check out my WSO Blog

The Man's picture

I must disagree with all this

(Monkey, 44
 
Points)
 on 4/26/12 at 4:16pm
TNA's picture

If I knew the government was

O
(Human, 13,711
 
Points)
 on 4/26/12 at 4:21pm

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SC911's picture

If you're rich enough to live

(Baboon, 118
 
Points)
 on 4/26/12 at 4:46pm
In reply to SC911
cheme-ib's picture

SC911: If you're rich enough

CO
 
Points)
 on 4/26/12 at 5:03pm

"So who lost the hundy?"

BTbanker's picture

My sentiments.

IB
 
Points)
 on 4/26/12 at 5:03pm

"A man generally has two reasons for doing anything. One that sounds good, and the real one." - J.P. Morgan

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