We have talked quite a bit about taxes lately as it's taken a more prominent role in the presidential election. In order to paint a picture of how our current tax breaks are not just for the wealthy, here is a simple illustration by an economics professor from Georgia.
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!'
'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
This is great example to help people understand our tax system and the effects of a tax cut. However, Obama is now proposing a new system where the first four men get paid to sit and drink their beers.
Of course with Barack Obama this little narrative will change.
In the end, the 8th, 9th & 10th men won’t get a discount at all they’ll actually have to pay even more so the Democrats can “spread the wealth around”.
The first 4 men will now make money cause they’re gonna get a refund even though they didn’t actually pay anything in.
This is a great, clean example of the way our tax system works.
I’d like to add that America’s taxes are already one of the lowest in the world, so everyone is already drinking the cheapest beer in town (including the rich guy).
Also, the reason the 10th guy pays so much compared to the rest is because his wealth is more than everyone else’s combined.
Plus, the 10th guy knows he can dress up like a farmer or humanitarian and get discounts, so he usually doesn’t end up paying the full amount anyway.
I think this leaves out a very important variable: How much each of these men make. If the tenth man has doubled his salary (and the rest of the mens’ salaries stayed the same) in the time they were paying $100 for the round, I think it makes sense for him to pay a greater percentage of the whole. If my salary doubled and my friends salaries stayed the same, I’d probably buy the round for my buddies - but I guess I’m not an a-hole.
The problem is you’re not buying a round of beer for your friends. You’re buying beer for the lazy guy down the street who won’t go out and get a job because he knows if he does he’ll start having to pay for his own beer.
I would say having to buy a beer for a lazy man is a small price to pay for living in a democratic country that values having the right to earn as much money as you want. See you in church on Sunday, Common Sense.
Can’t believe what I am reading in these comments!
It seems to me that Mr.congruence and Mr.Rick McLeod are actually the first and second guys who are already getting free pass.
Look at them - congruence:"pays so much compared to the rest is because his wealth is more than everyone else’s combined” So what, he probably works 80 or more hours a week. Besides 36% corporate tax rate is one of the HIGHEST in the world, that translates into about 22% of embedded tax in everything you buy. McLeod does not want to be ashamed: “I think it makes sense for him to pay a greater percentage of the whole” You think wrong buddy, unless you want me to show up at your door demanding that you give me half of what you own. After all, it makes sense since I earned nothing and you have so much more. It will be small price for you to give me your half in exchange for living in ‘DemoRatic’ country.
Among normal people this would be called thievery, not democracy.
Class warfare - that’s the precise thing people like you would like to propagate. Due to people like you mankind have seen Marx, Stalin, Hitler, Mao, PolPot, DemoRats and now BO.
Ah!, “class warfare” and references to Hitler - the kind of hyperbole that’s the hallmark of any reasonable debate.
Listen, what is so leftist, socialist, or communist about reexamining the tax burden of the American people every once and awhile and making it representative of what each segment of society has as a portion of the whole?
Mr. Guess Who, if you would like to show up at my door when I am making 100 million dollars a year and take 50 million of that so that your children don’t have to grow up in an America that owes trillions of dollars to China and the Middle East, then so be it. I guess I’ll have to drown my sorrows with the other 50 million.
Thank you Mr.McLeod, the DemoRat. You just confirmed what I was afraid of.
It is probably beyond your liberal brain to understand that Hitler was the ultraleftist socialist. That is not a hyperbole, just plain fact. It probably never occurred to you why Nazis (i.e. Nazional Sozialismus) were so close to Communists. Both Stalin and Hitler were shouting exactly what you are saying above. They also did not see anything wrong seizing fruits of someone else’s hard work. Yes, it starts with those who earned milions and ends with neighbor who has little bit more than you.
I love you leftist dimwits, you just love to be compassionate with someone else’s money (= life energy).
Fidel and Hugo would love you, their doors are open, don’t you know? I’d even pay you one way ticket, under provision that you can never come back.
BTW, if you think the taxes are too low, why don’t you pay more! Nothing prevents you from sending IRS all what you earn - if you work at all, that is.
Easy there, Turbo.
After you calm down, take another shot at answering my question:
What is so horrible about reexamining the tax burden of the American people every once and awhile and making it representative of what each segment of society has as a portion of the whole?
Rick,
The difference between what you’re offering and what you’re supporting is that with socialism (wealth redistribution), you’re not actually offering anything - and neither is anyone else. You’re simply supporting that the government takes from the owners against their will.
If you have billions and offer half to others, no one will stop you.* Wealth redistribution is simply the release of that freedom and the imposition of policy upon you.
* Actually, the government will step in and take most of it from you long before you actually have a chance to make that decision. For this argument, assume that I’m referring to your “take-home pay.”
Thank you Chuck,
hopefully he’ll get it. We need to implement FairTax asap. Seventy Congressmen alreeady support it (HR/SR25).
Yes, rich people pay a lot of taxes but they also benefit from them. Nobody can be a billionaire by just working alone in the middle of nowhere. It’s the socialist aspect of our society that gives some of us the opportunity to be more successful.
Bill Gates wouldn’t have made his billions without the infrastructure (roads, airports, power, electricity, ..) the public education (schools to colleges), the military research (internet, GPS,..), the justice system (patents law, …) all paid for by the rest of us.
That’s why I’ve never heard Bill Gates (or others in his class) complaining about how much taxes he pays. On the contrary, he wants more investment of the government (i.e. our money) to improve education; especially in the areas of math and science so his company won’t have to look oversees for skilled workers. He also needs to see that the rest of us have enough resources to buy his products (for our homes, schools, police force...)
In short, every industry (and every entrepreneur) is subsidized (directly or indirectly) by all of us by our local, state, and federal taxes.
Dear Ahmed,
who told you this stupidity about everything being subsidized? According to this nonsense, nothing would have been built before 1913 when punitive income tax in US was enacted (BTW it was 1% income tax only for the ‘rich’ making over 1M dollars, 1913 dollars).
If you think the taxes are too low, why don’t you pay more?
Keep in mind that government is just a thief middleman. They take a dollar, steal 80 cents for themselves and give two dimes to the ‘needy’.
If they are going to keep increasing taxes, I’ll just stop my business, layoff all my employees and would apply for welfare myself, why would I work? Now imagine if every business owner does same. Who will pay for welfare checks? Did it ever ocurr to you what would happen?
The moment you remove incentives by punishing the extra effort, no one will have any incentive to do anything. And mankind had this one already, it was called Soviet Union.
The socialism is an absolute victory of human envy over the common sense.
Beware what you pray for, you might get it!