Friday, December 10, 2010

Let's Go To Dinner.......My Treat


“Understanding Tax Cuts” by: David R. Kamerschen, Ph.D

Sometimes politicians, journalists and the liberal left exclaim; It’s just a tax cut for the rich!” and it is just accepted to be fact, But what does that really mean? Just in case you are not completely clear on this issue, I hope the following will help.
Let’s put tax cuts in terms everyone can understand, Suppose that every day, ten men go out for dinner 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 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.” Dinner 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 eat 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 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).

And Now Dessert

by lady di

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 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 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 anymore. In fact, they might start eating overseas where the atmosphere is somewhat friendlier.

5 comments:

Kansas Bob said...

Always hard to know what is going on when the folks in DC start messing with taxes. FYI, David R. Kamerschen denies writing it - http://davidk.myweb.uga.edu/

Linda said...

Well, if he didn't, he should have! I agree, when DC starts messing with taxes, or anything for that matter we don't know what is going to happen.

Thanks for the comment, and maybe those who read this will make up their own minds.

Missy said...

Taxes... We have to pay them, but we do not have to like them.

Charlene said...

That's quite a cute analogy.

Think of this. You have several grand children and you are a grandmother. It has been decided by people who were elected to make these decisions for all of us, allow us to continue to get a reduced tax rate, instead of allowing the rate to go back to what it was 9 years ago.

This means that the amount of debt we accumulate will continue to rise for just this reason $100 billion a year. This means that your grand children or even their children's children. Also, when the GOP takes over completely in the Congress and increases its power in the Senate January 1, they will begin raising the retirement age for SS payments and cutting down on SS payments so the yearly deficit will decline.

Not such a scary thing for people who don't have any kids in the game but something that would be of concern to me if I did.

Linda said...

Charlene, you are so right. I have 12 grandchildren, and I know it is going to be so hard on them. I do remember my dad telling me that his mom told him that each generation was going to have it harder than the last one. He told me that too, and I'm sure I've told my children that.

I think of our ancestors that came over on the 'boat' and how hard they had to work to keep food on the table for their families. The diseases that took them all too early, the babies that died in infancy.

My grandmother lived to be almost 99, in fact both of them did. My grandfather died at an early age,but my dad was closer to 86 than 85. My mom died at 80, of Alzheimer's, which was really unheard of before her generation. At least it hadn't been diagnosed.

Health care costs are atrocious. Education seems to get more expensive every year, but teachers don't really seem to be getting more money.

I think we have way too many 'administrative' types in every organization. Don't get me wrong, I think anyone who is able, and honest, should be able to get rich...filthy rich. I think the times of the unions who get huge wages for jobs that are being done overseas for pennies on the dollar, have out served their purpose. Housing costs went through the roof, and now people are paying for mortgages that are 'underwater'.

I don't have the answers, but surely, there are intelligent people out there that have the answers. I think we are all afraid of what will happen if we have to change.

Thanks for commenting.