Reality of tax cuts....

While we're watching the political commercials and listening to the politicians spin their web around unsuspecting and misinformed people...here's a "Reality" lesson in economics from:

David R. Kamerschen, Ph.D, Distinguished Professor of Economics,

536 Brooks Hall, University of Georgia, Athens, GA


Top 1% earn 21% of all income; pay 37-1/2% of all taxes

Top 5% earn 35% of all income; pay 56-1/2% of all taxes

Top 10% earn 46% of all income; pay 67% of all taxes

Top 25% pay 84% of all taxes

Top 50% pay 96-1/2% of all taxes

Bottom 50% pay 3-1/2% of all taxes


Just in case we are not completely clear on this issue, here is an old story that we hope will help explain our US Tax System.......

Tax Cuts –

A Simple Lesson In Economics This is how the cookie crumbles. Please read it carefully.

Let's put tax cuts in terms everyone can understand.

Suppose that every day, ten people 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 people (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 person (the richest) would pay $59.

So, that's what they decided to do. The ten people 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 people 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 people realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth person and the sixth person would each end up being 'PAID' to eat their meal.

So, the restaurant owner suggested that it would be fair to reduce each person's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth person, 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 people began to compare their savings.

"I only got a dollar out of the $20," declared the sixth person. He pointed to the tenth person "but he got $10!"

"Yeah, that's right," exclaimed the fifth person. "I only saved a dollar, too. It's unfair that he got ten times more than I got!"

"That's true!!" shouted the seventh person. "Why should he get $10 back when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four people in unison. "We didn't get anything at all. The system exploits the poor!"

The nine people surrounded the tenth and beat him up.

The next night the tenth person 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.

that was beautiful

I love anecdotes and analogies, they help idiots understand .................
...........I ssssooooooooo understand tax breaks now.

But how do you explain the rich not getting hosed as bad as the poor folk??

:D

Good post!

This story is used in second-year economics classes because it clarifies so much. Great post.
I did my thesis on a flat-sales-only-tax-rate based on 1985 tax return statistics and GDP. The rate was 11% and I got remarkable results....

Automobile prices dropped and average 23%
Gas prices dropped 29%
Groceries dropped an average of 17%
New home prices dropped 48%
Cigarettes and alcohol prices dropped 43%
Household bills dropped an average of 31%

What really got peoples attention was this part... The gross tax receipts jumped $146,340,000.00 over then-current tax receipts!!!!!!! That was estimated without any retail sales increases, just using actual spending base points from that year.
This also doesn't show the national savings gained by eliminating personal tax-related expenses, government administration savings, increased exports due to lower cost goods, and additional manufacturing.

The congress considered this in 1995 but I don't think they sold it properly. That and the democrats know that their power-base is taxation. Flat sales taxes are the future!!

Ok. Thats enough of that! Quit making sense or else!!





:p













Never pay again for live sex! (http://showmewebcam.com/?p=1) | Hot girls doing naughty stuff for free! (http://showmewebcam.com/?p=3) | Chat for free! (http://showmewebcam.com/?p=5)

But how do you explain the rich not getting hosed as bad as the poor folk??

:D

Good post!
Hahaha. It's b/c they think the government should just give them money b/c they're poor and not work for anything. And im not down to have money taken out of my pay check to help someone who doesn't want to strive for something better. :disappoin

Absolutely fantastic post.

flat tax...yummy

Wait, whats a flat tax?

Wait, whats a flat tax?
One set tax percentage, say 10% across the board.

This story is used in second-year economics classes because it clarifies so much. Great post.
I did my thesis on a flat-sales-only-tax-rate based on 1985 tax return statistics and GDP. The rate was 11% and I got remarkable results......


Oh no, that will never work. People might start saving their $$$ and avoid so much debt! God forbid we encourage anyone to be fiscally responsible. :rolleyes:

so your model relies on collecting 10% tax from a large proportion of your population who can barely afford to pay nothing at the moment? Im sure they'd be thrilled to know that the price of a new automobile would be slightly less of a fantasy for them.

so your model relies on collecting 10% tax from a large proportion of your population who can barely afford to pay nothing at the moment? Im sure they'd be thrilled to know that the price of a new automobile would be slightly less of a fantasy for them.

New-auto taxes don't discriminate. EVERYONE pays them. The nice thing about a flat sales tax is that the less crap you buy, the less you pay - so those who buy a lot of crap subsidize the most.

My experience is that whenever we get a federal tax reduction, the state government immediately sucks it right back from our wallet in the form of a new "user fee" or additional state tax. But when the feds raise taxes, the state raises them also. Either way, we get screwed so I don't worry about it. The same with the minimum wage. The second it goes up, the rents and prices go up, so why worry? Ten dollars an hour or one dollar an hour, life is still the same for the average working man.

New-auto taxes don't discriminate. EVERYONE pays them. The nice thing about a flat sales tax is that the less crap you buy, the less you pay - so those who buy a lot of crap subsidize the most.
Flat taxes are the fairest way to tax. EVERYBODY is taxed at the same rate. 10% for me is the same as 10% for you. 10% for you is the same as 10% for Don Trump. 10% for Don is the same as 10% for Bill Gates. etc...

So in a plan like that what happens to people who can't afford a tax like that?

So in a plan like that what happens to people who can't afford a tax like that?
Everyone should be able to afford it. If you have $10.00...you should have a dollar. If not, you manage your money worse than me.

Everyone should be able to afford it. If you have $10.00...you should have a dollar. If not, you manage your money worse than me.


I've no doubt that you have problems managing your money if you can't get your head around the concept of poverty.


Let's take your ten dollars.If you are careful, it will provide enough food to keep a family of four from going hungry for a day.Just.

now lets assume that you have $100. You've got enough for a good feed for a family of four, with very few restrictions on the menu,a couple of nice bottles of wine, some soft drink for the kids,some icecream for desert...........

take 10% out of each person's pocket.Who actually suffers as a result?

naki everyone was getting all happy go lucky on the idea and then you just bring them down.

Way to go.





So if our tax system sucks, what is your's like?

Expensive.

But then,I'd have to say that I have never had any issues with the quality of services offered by the current government.

Me either.

If you want the full article, here's the website.

http://www.ctj.org/html/gwb0602.htm

Here's the conclusion.

CTJ’s new study conclusively exposes the chicanery of the Bush administration and its supporters in arguing that the tax cuts were even-handed. “After all,” they claimed, “the rich pay most of the taxes, so it’s only fair that they get the lion’s share of the tax cuts.” But in fact, in 2010 before the Bush tax cuts, the top one percent was expected to pay just over a quarter of all federal taxes (don’t feel too bad for these people; they’ll take in 19 percent of all the income). So a tax cut that gives the richest Americans more than half of its benefits is obviously anything but even-handed.

Compared to the federal taxes that would have been paid in 2010 before the tax cuts, Bush’s program reduces taxes on the wealthiest by 15 percent. For the remaining 99 percent of us, the tax cuts average only 5 percent. More tellingly, by 2010, the very rich will see their taxes fall by 5.7 percent of their income. For the remaining 99 percent, the average tax cut is only 1.2 percent of income.

so your model relies on collecting 10% tax from a large proportion of your population who can barely afford to pay nothing at the moment? Im sure they'd be thrilled to know that the price of a new automobile would be slightly less of a fantasy for them.
You make it sound as if they are paying an additional tax, quite the contrary... They would be relieved of ALL federal income tax, costs of living would drop dramatically, and they would have more money in there pockets.
This is a sales-only tax. It eliminates all VAT taxes making manufacturing products that much cheaper. The taxes built into a new Cobalt are about 32% of it's sticker price!!! Or look at it like this, 32% of the sticker price would drop making the car more affordable, the manufacturer would be more competitive overseas increasing exports, the manufacturer makes more profit, our consumers by more product, tax reciepts go up... Win win situation in my book.
I've no doubt that you have problems managing your money if you can't get your head around the concept of poverty.
Let's take your ten dollars.If you are careful, it will provide enough food to keep a family of four from going hungry for a day.Just.
now lets assume that you have $100. You've got enough for a good feed for a family of four, with very few restrictions on the menu,a couple of nice bottles of wine, some soft drink for the kids,some icecream for desert...........
take 10% out of each person's pocket.Who actually suffers as a result?
Oh I see, since I've worked my ass off for 18 years and made sacrifices others wouldn't so that my family can lead a comfortable life as I work 70-80 hours a week, I should carry a burden for those who have made poor choices, taken easier paths, never sacrificed anything, and never done anything to improve their earning capability. Yea, that's fair! I didn't make $90K a year straight out of college (which I paid for). In fact, up until 4 years ago I was making about $20K and lived quite comfortably and happily. Even then I donated to charity and saved 15% of my income for the future. I've met far too many of your "poverty cases" that simply lack initiative and are far to interested in living for the moment that planning or even thinking about their future. Popping out babies at 17 is a sure path to poverty as is excessive drinking and drug use. 85% of our poor are that way because of one or more of those examples. If your behavior brought you to such a state, why should I pay for it?
I'd have to say that I have never had any issues with the quality of services offered by the current government.
Services better provided by the private sector with higher quality, much lower prices, and that offer something to your economy instead of being a draw on it.
Your arguements suggest simple envy. You don't want to sacrifice your comfort for your future and spend more time on this website than I do at work.

murco, while i admire your fiscally conservative stance, youre over simplifying the poverty problem.

not everyone starts out in a middle class lifestyle and then makes choices that determine if they go up and down the economic ladder. a great majority of poor people are BORN into poverty.

now, go ahead and claim that they can pull themselves up, yadda yadda yadda, bullshit sullshit bullshit. its simply not true. while 2% or so might make it, the vast majority dont, even if they do work hard.

a solution to this tax problem is one that is already practically in place. those who make under 28,000 get everything back, every year. but instead of labeling it a tax refund, the government should label it "an investment in yourself". those people could think of it as the government showing them how much money they could save if they put aside 10% or every paycheck. a government sponsored savings account if you will.

i know its idealistic to think that the druggies and alcoholics would be turned around by this and pull themselves out of poverty. but people with a genuine desire to better themselves could benefit from a change in attitude from the government.

So in a plan like that what happens to people who can't afford a tax like that?
If your just getting-by right now this tax would relieve about 20% of your bills.
Income taxes would be eliminated (additional 5-15% more "take-home" for low-income families)
Light, water, electrical, and phone bills would drop (another 15-20% savings)
Housing prices would drop 20-35%
Automobile prices would fall an average of 36%, depending on model
Grocery prices would fall an average of 15%
Gas would drop 40-55 cents a gallon
This is but a sample of lowering costs of living and making a families dollars go further. These taxes would be replaced by a federal SALES tax of say, 6% and a state SALES tax of 4% for a total of 10% tax on the sales only!
There would be no taxation of industry, no tax loopholes, and no tax grants so "big business" wouldn't get so involved in politics.
There would be no "sin-tax" so you can feed that serosis-filled liver even more!
There would be no political-engineering done with the tax code either!
How can one argue with this??

Your arguements suggest simple envy. You don't want to sacrifice your comfort for your future and spend more time on this website than I do at work.


Frankly I find your ignorant and ill-informed comments to be offensive.Tell me at 3am tommorrow when I am at work,in a chiller full of cheese, earning an above-average wage that I am not sacrificing my comfort for the benefit of my future.Tell me on payday,when I bank four times what my family would receive on welfare that I am envious of anyone.Tell me when I check my tax bill, and find that I'm paying for my own family, and my retired parents, that I'm not entitled to an opinion on whether or not the government is spending my money wisely.At least they're not wasting it on ridiculous posturing in the middle east.

As to the amount of time I spend on this website,what business is it of yours?If you spend less time at work than I spend here, you must be a slacker of the highest order.Some of us work 12 hour shifts,and come out very well as a result.For you to assume that because I disagree with your political opinions,I must be a bum , is not only highly offensive, but also indicative of how narrow-minded and stupid you really are.

murco, while i admire your fiscally conservative stance, youre over simplifying the poverty problem..
This forum is short-form and poverty is a long-form issue. I've tried to condense this as much as possible.
not everyone starts out in a middle class lifestyle and then makes choices that determine if they go up and down the economic ladder. a great majority of poor people are BORN into poverty..
Correct, except the poor MAKE CHOICES too! Most only need guidance to make better choices but goverment only makes it worse.
now, go ahead and claim that they can pull themselves up, yadda yadda yadda, bullshit sullshit bullshit. its simply not true. while 2% or so might make it, the vast majority dont, even if they do work hard. .
Let's look at the leaders who want to raise the poor out of poverty. Jesse Jackson is in a position to help minorities whom view him as a leader, but he doesn't. He rattles his sabre at congress, shakes down corporations for donations to his groups, and keeps those who need the help in poverty. Why? If poverty ended, so would his, and Sharpton's careers.
a solution to this tax problem is one that is already practically in place. those who make under 28,000 get everything back, every year...
And who put that in place? George Bush.

Frankly I find your ignorant and ill-informed comments to be offensive..
As I find your continuous Bush bashing, America bashing, wealth bashing, and general pissing on everything rather offensive. Your "dog ain't in this fight" or even in America so why the hell do you feel complelled to comment?
Tell me at 3am tommorrow when I am at work,in a chiller full of cheese, earning an above-average wage that I am not sacrificing my comfort for the benefit of my future.
I never said you don't work hard and I'm glad for you that your comfortable with socialism. Bully for you!
As to the amount of time I spend on this website,what business is it of yours? If you spend less time at work than I spend here, you must be a slacker of the highest order.
I point out that we joined AF within 2 months of one-another yet I have under 900 posts versus your near 15,000! Add in the numerous links to left-wing sites that you obviously must read and I'd say you spend an awful lot of time online. Probably more time than I spend at work (60-70 hours a week). Just a suggestion, get out more often. It may help your anger problem...
For you to assume that because I disagree with your political opinions,I must be a bum , is not only highly offensive, but also indicative of how narrow-minded and stupid you really are.
The only assumption is the one you made. I never called you a bum and I've not referred to you as narrow-minded or stupid in the last year. While your political opinions are on the extreme opposite of mine I'll never deny your right to them.

If your just getting-by right now this tax would relieve about 20% of your bills.
Income taxes would be eliminated (additional 5-15% more "take-home" for low-income families)
Light, water, electrical, and phone bills would drop (another 15-20% savings)
Housing prices would drop 20-35%
Automobile prices would fall an average of 36%, depending on model
Grocery prices would fall an average of 15%
Gas would drop 40-55 cents a gallon
This is but a sample of lowering costs of living and making a families dollars go further. These taxes would be replaced by a federal SALES tax of say, 6% and a state SALES tax of 4% for a total of 10% tax on the sales only!
There would be no taxation of industry, no tax loopholes, and no tax grants so "big business" wouldn't get so involved in politics.
There would be no "sin-tax" so you can feed that serosis-filled liver even more!
There would be no political-engineering done with the tax code either!
How can one argue with this??

First off my state's sales tax is 6%, so with the federal 6% you state, sales tax would be doubled.

Also to use a direct example out of what you said, grocery prices would fall 15%, but the tax would be doubled...
Plus everythign else that does not get itd price reduced, still has that doubled sales tax...

First off my state's sales tax is 6%, so with the federal 6% you state, sales tax would be doubled....
You federal income tax would be eliminated, these are the ONLY taxes you would pay.
Also to use a direct example out of what you said, grocery prices would fall 15%, but the tax would be doubled...
Plus everythign else that does not get it's price reduced, still has that doubled sales tax...
So you would still save 3% on the groceries and EVERYTHING manufactured or grown has taxes built into it!
Let's use a car...
The average built-in taxes from auto manufacturing are 36%
So, I buy a 2005 Infiniti G35 coupe that today costs $37,860.00 and in Florida I pay 6% sales tax + 1% local tax for a total of..
$40,510.20
Take out 36% of the car's price and you have $24,230.40. Add in the 6% federal sales tax and let's say 7% Florida tax (which could easily be reduced as well) for a grand total of...
$27,380.35
Saving $13,129.85 is huge! And, now that you have no taxation of your salary except social security, you have more dollars to spend!
This is just a car, but think of how much you'll save in gas every week or groceries or utilities...
Also, the U.S. government spends $1,650,000,000.00 on enforcing the IRS laws and administration. This could easily be cut by 3/4 with a sales tax system and the damn IRS would keep out of our lives!!! There would be no way to cheat it either.

I'll start another thread showing step-by-step how this would work with more details...

As I find your continuous Bush bashing, America bashing, wealth bashing, and general pissing on everything rather offensive.

Well, you got one right.I bash Bush.The rest of it is all your own little fantasy, so perhaps if you stopped attributing it to me, you wouldn't find it so offensive.Try opening your ears as often as you open your mouth and you might end up with half a clue what people are talking about.