The following comes from an economics professor at the 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 $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. "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 among all of them for even half of the bill! And that, everyone, 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.
Well, maybe in the Caribbean. Where are rich Americans going to find a country in Europe that doesn't tax the hell out of them?
My sisters sent me this last week. I thought about posting it here, but decided against it. There are divergent opinions on this subject, and other than a few occasional defections, I doubt either side will be swayed by the other.
And that, everyone, 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. Yes, I'm sure the rich are just going to stop trying to make money or all flee the US to avoid paying taxes. 2% of Americans will receive 48% of the dividend tax elimination. You try to explain how that's a stimulus package.
You're only thinking abou the most consistent posters... there are lots of readers. This is an educational piece. As I understand it, it is pretty accurate factually/mathematically. It's not a matter of opinion. It's an educational analogy. <B>Most</b> people would think this lunch scenario is ludicrous--- yet that is our tax system in operation.
because they have the most money and get the most money back? is that an explanation? And how does giving a bunch of money to 2% of the population, and simultaneously running deficits which have to be paid for by the rest of us <I>stimulate the economy</I>? Remember, this is all part of a supposed stimulus package. Most people would think this lunch scenario is ludicrous--- yet that is our tax system in operation. No, its our tax system distorted into an odd analogy in order to make the tax system look evil. The funny thing is that the 10 men had no problem with the original system - rich guy included. The problem only occurred when there was a tax cut. Maybe the argument is that we shouldn't have tax cuts?
The thing I don't understand is why the restaurant wanted to knock 20 bucks off the price in the first place. He was never forced to reduce prices and could have kept it at $100; his customers weren't going to the Caribbean restaurant down the street. Now, he has to get by on $80. Will he have to cut staff? Will he start buying sub-standard beef? Will he have to start borrowing more money from his creditors to cover the shortfall that he himself created? In the long run, will he pass the interest from those debts along to these same customers? Or, will he eventually go bankrupt and close shop?
I think that the analogy would be more accurate if instead of the restaurant owner reducing the cost of the meal by 20%, the ten men just decided to pay 20% less. So each time the ten men go out to dinner, they will be running a deficit.
Productivity gains allow you to sell products cheaper. That's how the standard of living is higher in capitalist countries compared to close economies.
Mr. C, I mention it because government is not really like a service at all. Citizens can't just up and go use some other government down the street that is cheaper. It is a monopoly and, as such, has a great deal of control on the price for its product. They decided to lower the price but there was no real compelling reason to do so. And, when it comes down to it, I wish they hadn't. It might give the economy a short-term kick but I don't think it will have any long-term benefit. In the meantime, they've sold themselves short, bringing in less money for the services they provide than they are paying out to provide those services; they've shot themselves in the foot in terms of paying the costs and in adding debt to an already enormous burden. If productivity really has increased, we wouldn't have a budget shortfall.
This reminds me of the scene in the Rodney Daingerfield movie where the business prof is trying to explain how business works and Rodney starts talking about bribes and paying off the mob. Here's what I would add to make it more real: The $59 dollar guy slips the owner a quarter to make sure that all the entrees are sent to him. He slips the owner a dollar and magically his son becomes friends with the owner and together they open a new restaurant at no cost to the dad or son. The middle guys think they are getting a good deal, but don't realize the only food they have consists of empty calories and they have to spring for the tip. Their kids become waiters and spend the rest of their lives running around attempting to please the owner while trying to accumulate things that make them look as if they were the owner. The four who pay nothing only get a small salad plopped in front of them and have to fight for the one helping of dressing. Their kids are immediately pressed into service as dishwashers.
Giving a bunch of money to 2% of the population is a misrepresentation of the American tax situation. First of all you are not giving anyone anything, you are just taking away less. Second of all, that wealthiest 2% are the people who employ the rest of Americans and if they have more money they can hire more employees and expand their businesses. That way we all benefit, just like how everyone at that table benefited with the rich guy at the table. That is the basis for economic stimulus, you have to give business the opportunity to expand, not give everyone 300 to go spend on beer and cigarettes. I think it is strange that you are suggesting we shouldn't have tax cuts. Are you some sort of a socialist? I am being serious, I am not trying to be dramatic. It seems to me that everyone would like to be wealthy, or at least try to be, and if you were making any kind of money, wouldn't you want to keep more of it? Do you have a job Major? I don't right now but I don't resent people who do. And I plan on getting one soon and when I do, I want to be able to keep more of my money. If you don't mind giving away your money why don't you give me some, I could really use it right now.
Right, I was talking more about why a restaurant would reduce it's prices, not of why a government reduces taxes. This is where the metaphor breaks down I guess. A government doesn't have much incentive to reduce taxes. I think it will keep pork spending down, which is a good thing, and if there needs to be a health plan or whatever later then taxes can always be raised.
Second of all, that wealthiest 2% are the people who employ the rest of Americans and if they have more money they can hire more employees and expand their businesses. This is a load of crap. First off, the majority of Americans are employed by small business. Second of all, why the hell would a business employ MORE people when they're not even selling the products they are already producing? We're not in some kind of crazy expansion where businesses have a lack of capital. We're in a recession where people aren't even buying what's already out there. I think it is strange that you are suggesting we shouldn't have tax cuts. How much is too much? I think you agree that 0% taxes is too low, right? Why is the Bush rate "right" and the current rate "wrong"? "Tax cuts" is a nice buzzword but has to be balanced with fiscal needs of the government. In a time when our government is having all sorts of new demands (terrorism, war, etc), you don't cut off its funding. It seems to me that everyone would like to be wealthy, or at least try to be, and if you were making any kind of money, wouldn't you want to keep more of it? Do you have a job Major? I don't right now but I don't resent people who do. Blah blah blah ... Yes I do. I'm one of the ones that would be benefit from the dividend cut - and I'm not opposed to it under the right circumstances (a strong economy, a surplus, etc). The thing is that I choose not to be irresponsible. Cutting taxes doesn't just create money - it has to be paid by someone else. It's irresponsible to cut taxes and just rack up deficits so that our kids can pay ridiculous amounts of taxes for NOTHING except to pay interest on an enormous debt. As of a few years ago, we were paying $0.14 out of every dollar of taxes just to pay interest on the ridiculous debt of the 1980's and 1990's. Not to provide defense or education or social services - just to pay interest on our past fiscal irresponsibility. We could have cut taxes by TWICE what Bush proposed last year at *absolutely no cost* if we hadn't racked up a debt in the 80's and 90's. I'm not opposed to tax cuts. I'm opposed to the fiscal irresponsibility that is being shown by this administration.
How would this in any way make it more real? Sheesh. IF anything, they folks paying higher taxes get fewer services not more.
On the small business thing, aren't most small business owners in the highest tax bracket? I have no idea if they are, just asking. On the demand thing...don't companies need to invest in some products to create some new demand? If there's no demand for what's out there now, shouldn't businesses be concentrating on getting some new products out there? Wouldn't we want to encourage investment in this case? Just a couple of points I saw brought up on some financial show this weekend.
Here's a story: There's this monkey who picks up 40 bananas a week. After he does this, a big scary lion take 18 of the bananas, leaving the monkey with 22 bananas a week, more than he needs. Then there's this other monkey who, for whatever reason, can only pick up 4 pieces bananas a week. After he does this, the big scary lion takes one of them, leaving this monkey with 3 bananas, not nearly enough for his needs. Of course, some would argue that the second monkey is just some sort of lazy slob who gets a few nuts a week from the big scary lion, but many times, the monkey's disabled, under-educated, or has just had a string of bad luck. Of course, it makes sense to some that the second monkey would be better off getting half of his banana back rather than the first monkey getting eight of his back.
