Reality of tax cuts....

[Flatrater]

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.

[dayna240sx]

that was beautiful

[a_hol06]

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

[thegladhatter]

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



Good post!

[Murco]

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!!

[YogsVR4]

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

[TexasF355F1]

Originally Posted by thegladhatter

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



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.

[LotusDreams]

Absolutely fantastic post.

[lazysmurff]

flat tax...yummy

[a_hol06]

Wait, whats a flat tax?

[TexasF355F1]

Originally Posted by a_hol06

Wait, whats a flat tax?

One set tax percentage, say 10% across the board.

[boingo82]

Originally Posted by Murco

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.

[taranaki]

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.

[boingo82]

Originally Posted by taranaki

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.

[aloharocky]

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.