Posted on 10/22/2004 11:15:53 AM PDT by stockstrader
----Tax cuts and How They Work ---
Tax Cuts - A Simple Lesson In Economics by David R. Kamerschen, Ph.D., Distinguished Professor of Economics; 536 Brooks Hall, University of Georgia.
____________________________________
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.
The tenth man (the richest) would pay $59.
So, 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 each 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, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now paid $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 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 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 me!"
"That's true!!" shouted the seventh man. "Why should he get $10 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 the tenth man 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 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 at the table anymore. There are lots of good restaurants in Europe and the Caribbean .
Thanks, David R. Kamerschen, Ph.D., Distinguished Professor of Economics, Univercity of Georgia
Ooops,,,University,,,
GREAT simply Great anlogy you put that in terms people could easialy get nicely done
Excellent, I like this! Walter E. Williams would love this as well. Simple and too the point.
Is there a link....
Or copyright attribution... so we can quote this?
Regards
You'd have to contact him at the University of Georgia. I got this from another forum that I frequent. Sorry for the earlier typo. Too much to type!!
thanks for the post. here is another look at taxes and big gov't. i cannot take credit for it.
The Modern Little Red Hen
Condensed from Nation’s Business July 1970
Once upon a time there was a little red hen who scratched about the barnyard until she uncovered some grains of wheat. She called her neighbors and said, “If we plant this wheat, we shall have bread to eat. Who will help me plant it?”
“Not I, “ said the cow.
“Not I, “ said the duck.
“Not I, “ said the pig.
“Not I, “ said the goose.
“Then I will,” said the little red hen, and she did. The wheat grew tall and ripened into golden grain.
“Who will help me reap my wheat”, asked the little red hen.
“Not I,” said the duck.
“Out of my classification,” said the pig.
“I’d lose my seniority,” said the cow.
“I’d lose my unemployment benefits,” said the goose.
“Then I will,” said the little red hen, and she did.
At last, it came time to bake the bread. “Who will help me bake the bread?” asked the little red hen.
“That would be overtime for me,” said the cow.
“I’d lose my welfare benefits,” said the duck.
“I’m a dropout and never learned how,” said the pig.
“If I’m to be the only helper, that’s discrimination,” said the goose.
“Then I will,” said the little red hen. She baked five loaves and held them up for her neighbors to see.
The all wanted some – in fact, demanded a share. But the little red hen said, “No, I can eat the five loaves myself.”
“Excess profits!” yelled the cow.
“Capitalist leech!” cried the duck.
“I demand equal rights!” shouted the goose.
The pig just grunted.
Then they hurriedly painted “unfair” picket signs and marched around, shouting obscenities.
The government agent came and said to the little red hen, “You must not be greedy.”
“But I earned the bread,” said the little red hen.
“Exactly,” agreed the agent. “That is the wonderful free-enterprise system. Anyone in the barnyard can earn as much as he wants. But, under government regulations, the productive workers must divide their product with the idle.”
And they lived happily ever after. But the little red hen’s neighbors wondered why she never again baked bread.
Not trying to flame you.... just wanted to use it later and found the internet folklore angle... It actually sounds MORE like Walter Williams..etc.
Stay safe
Thanks!!
This is one of the reasons I retired to Panama. Federal taxes stay the same but at least I don't get beat up on my state taxes.
bump an oldie
wow, memories.
bump an oldie again
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