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A Different Way of Explaining Taxes
Tax Free Tennessee ^ | Unknown

Posted on 08/05/2002 5:59:13 AM PDT by Blood of Tyrants

A Middle Tennessee accountant relays the following story.

I was having lunch with one of my favorite clients last week and the conversation turned to the government's recent round of tax cuts. "I'm opposed to those tax cuts," the retired college instructor declared, "because they benefit the rich. The rich get much more money back than ordinary taxpayers like you and I and that's not fair."

"But the rich pay more in the first place," I argued, "so it stands to reason that they'd get more money back." I could tell that my friend was unimpressed by this meager argument. Even college instructors are a prisoner of the myth that the "rich" somehow get a free ride.. Nothing could be further from the truth. Let's put tax cuts in terms everyone can understand.

Suppose that everyday 10 men go to dinner. The bill for all ten comes to $100. If it was paid the way we pay our taxes, the first four men 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.

The 10 men ate dinner in the restaurant every day and seemed quite happy with the arrangement until 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. Now dinner for the 10 only costs $80.

The first four are unaffected. They still eat for free. Can you figure out how to divvy up the $20 savings among the remaining six so that everyone gets his fair share? The men realize that $20 divided by 6 is $3.33, but if they subtract that from everybody's share, then the fifth man and the sixth man would end up being paid to eat their meal.

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 $59. Outside the restaurant, the men began to compare their savings. "I only got a dollar out the $20," declared the sixth man pointing to the tenth, "and 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 something important They were $52 short.

And that, boys and girls 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. There are lots of good restaurants in Switzerland and the Caribbean.


TOPICS: Business/Economy; Constitution/Conservatism; Culture/Society; Government; Miscellaneous; US: Tennessee
KEYWORDS: poor; rich; taxes; taxreform
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To: Blood of Tyrants
I read it, and I shrugged.

Thanks anyway.
61 posted on 08/05/2002 1:25:20 PM PDT by Age of Reason
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To: VRWC_minion
Then you are arguing that he should have paid 70% to begin with

More accurately: If the current tax burden is exactly "correct" then a distribution of a refund should be proportional to taxes paid. Otherwise not, necessarily.

I assume you are aware that since taxes include payroll taxes and excise taxes, as well as income taxes, a porportional reduction of the latter raises the overall allocation of taxes paid by the lower income levels.

BTW, if you calculate total taxes paid as a percent of total income from all sources, which income levels do you think currently pay the proportionately higher rates?

62 posted on 08/05/2002 1:34:49 PM PDT by Deuce
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To: VRWC_minion
Unlike your class envy angles, I have yet to make any value judgments as to what or who "deserves".

First, you don't have the vaguest idea what income class I belong to. Your allegation of class envy is based on what?

Secondly, you use the term "deserve" in two posts to Age of Reason (#52 and 56). I use it in a context which no one can possibly mis interpret (except you). It is within the context of who "deserves" the tax cut. Haven't you been arguing that those who paid it "deserve" a proportional cut?

63 posted on 08/05/2002 1:49:57 PM PDT by Deuce
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To: Deuce
I assume you are aware that since taxes include payroll taxes and excise taxes, as well as income taxes, a porportional reduction of the latter raises the overall allocation of taxes paid by the lower income levels.

I assume you you wish to ignore that payroll taxes fund a retirement benefit and a health insurance benefit ?

BTW, if you calculate total taxes paid as a percent of total income from all sources, which income levels do you think currently pay the proportionately higher rates?

Before playing this game to we include all taxes both direct and indirect that Microsoft will pay ? Do we recognize that Gates and his stockholders will pay income tax twice on the income distributed and will pay an estate tax on income not distributed ? Do we give ample credit to the value of retirement benefits that accrue to those who pay payroll tax ?

Or do we only play the game with your defined terms ?

64 posted on 08/05/2002 2:19:32 PM PDT by VRWC_minion
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To: Deuce
First, you don't have the vaguest idea what income class I belong to. Your allegation of class envy is based on what?

I don't accuse you of class envy, I accuse your presentation of being based on class envy.

Secondly, you use the term "deserve" in two posts to Age of Reason (#52 and 56). I use it in a context which no one can possibly mis interpret (except you). It is within the context of who "deserves" the tax cut. Haven't you been arguing that those who paid it "deserve" a proportional cut?

Deserve is an objective term the last time I looked. The analogies given to start this thread were based in objective data (ie how much was the check and how much each paid).

The introduction of the term "deserves" brings a moral subjective term into play and it goes undefined.

Who are we too determine who deserves what ? I readily admit I have no superior wisdom that would allow me to decide who deserves what in this world. Apparently you do. What basis do we decide ? One years income ? What if the only income in this persons lifetime was winning a 200k lotto does he deserve a higher tax than someone earning it over 10 years ?

To you it is self evident that someone "deserves" a higher tax because his income is high. I don't think I know that they do.

I might argue that he can afford it easier, I might argue that a graduated tax policy is preferable to a flat tax but I cannot argue that he deserves it more.

The introduction of that term in my mind is only done to appeal to emotions and the class envy that others have of people who make more than they do.

65 posted on 08/05/2002 2:28:13 PM PDT by VRWC_minion
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To: VRWC_minion
Or do we only play the game with your defined terms ?

Let's use your terms.

P.S. I'll bet Bill Gates is happy he has you to point out about his double taxation. But are you aware, that if Microsoft expensed options they have lost money for the last 10 years

66 posted on 08/05/2002 2:44:15 PM PDT by Deuce
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To: VRWC_minion
To you it is self evident that someone "deserves" a higher tax because his income is high. I don't think I know that they do.

Au contraire. I'm the one arguing that the allegory (which purports to imply the "correct" way to do things) is nonsensical. You're the one who seems to think the allegory has some value.

67 posted on 08/05/2002 2:49:53 PM PDT by Deuce
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To: Deuce
I like your math. parsy.
68 posted on 08/05/2002 2:50:33 PM PDT by parsifal
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To: Deuce
Let's use your terms.

Okay. Ping me when you finish.

69 posted on 08/05/2002 3:16:43 PM PDT by VRWC_minion
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To: Deuce
I'm the one arguing that the allegory (which purports to imply the "correct" way to do things) is nonsensical.

All analogies are nonsensical in that they purport to demonstrate a point by making all other variables equal. This one was desgined to make a point contrary to the one that was made that an across the board tax cut is a tax cut for the rich. It did its job in that respect.

Instead of taking issue with that point (which I gather you could not )you attacked the analogy on two fronts, both of which were straw man arguments because they were points that the analogy were not designed to address.

The first was because it didn't take into consideration that the original tax was a fair allocation of the tax burden. You failed to demonstrate that the higher taxed person benefited more from Gov't services than his proportionate share. You apparently believe that its self evident.

Your second objection was we are only looking at one tax and we should broaden it to all taxes. However you conviently want to only include the payroll tax while excluding the numerous other taxes and also exluding the benefits derived by the payor of that tax.

70 posted on 08/05/2002 3:25:47 PM PDT by VRWC_minion
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To: VRWC_minion
The analogy that sparked this thread purports to establish the proposition that a tax cut should be allocated in proportion to the current tax allocation. I made the following two points:

1. If the top group currently pays 40% of the income tax but makes 60% of the income, giving it 40% of the tax cut disproportionately and inappropriately benefits that group.

2. If the income tax is more progressive than other taxes that are not cut, the net effect of an across the board income tax cut disproportionately benefits the top group.

Determining whether or not a particular group pays more or less than it should is a complex evaluation that ultimately involves subjective value judgments. You apparently believe the top groups pay too much. I disagree.

71 posted on 08/05/2002 9:27:53 PM PDT by Deuce
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To: VRWC_minion
You are assuming they produce less as a group than they receive which hasn't been established.

How much land have they produced?

72 posted on 08/05/2002 10:05:46 PM PDT by Age of Reason
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To: Deuce
1. If the top group currently pays 40% of the income tax but makes 60% of the income, giving it 40% of the tax cut disproportionately and inappropriately benefits that group.

The top 10% pay 65% of the income tax. An accross the board tax cut would in theory not change the relative proportion of tax burden.

As for overtaxed, I believe every income category is overtaxed.

73 posted on 08/06/2002 6:48:41 AM PDT by VRWC_minion
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To: Age of Reason
How much land have they produced?

Shouldn't the question be how much land have they made produce ?

74 posted on 08/06/2002 6:49:32 AM PDT by VRWC_minion
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To: VRWC_minion
The top 10% pay 65% of the income tax. An accross the board tax cut would in theory not change the relative proportion of tax burden.

Yes, but the issue is: Can an across the board tax cut disproportionately benefit the top 10%. The analogy and you say "no." I say, "yes" if:

1. the top 10% makes more than 65% of the income (or are otherwise deemed to be currently underpaying, for that matter); or

2. other taxes not involved in the tax cut are less progressive than the income tax.

Conversely, if the opposite of the two statements above are true, then the top 10% is benefitting LESS than proportionately from the tax cut. SIMPLE MATH introduced to demonstrate that the analogy is nonsensical (a point that you have already agreed with). Therefore, I will drop the subject regardless of your response.

75 posted on 08/06/2002 8:19:53 AM PDT by Deuce
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To: Blood of Tyrants

bttt


76 posted on 02/24/2011 10:08:34 AM PST by InvisibleChurch (The great American prostate exam continues.)
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To: InvisibleChurch

Man, that is an OLD thread.


77 posted on 02/24/2011 10:20:05 AM PST by Blood of Tyrants (Islam is the religion of Satan and Mohammed was his minion.)
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To: Blood of Tyrants

cleaning up old bookmarks


78 posted on 02/24/2011 10:22:59 AM PST by InvisibleChurch (The great American prostate exam continues.)
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To: All

b


79 posted on 02/24/2011 10:25:44 AM PST by Maverick68
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