Taxes Explained

[THEFERMANATOR]

Suppose that every day ten men go out for beer 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 drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. He said, "Since you are all such good customers, I'm going to reduce the cost of your daily beer by $20. Drinks 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 drink 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 drink his beer. So the bar 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 pay $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 drink 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 I!"
"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 drinks, so the nine sat down and had beers 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 any more. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.






What do you think

[Airslot]

I'll drink to that...

[bcmarinamanager]

excellent analogy!!!

[spareparts]

the only thing left out is the tenth man owned the bar thru one of his many investments, so the amount spent by all went towards his gross income. He also discussed business while he was having a drink and his accountant deducted the expences of the evening from his taxes. Thru another offshore account, he had an investment thru the beer distributor, the beer manufacture, the construction company that built the building, the trucking company that hauled the beer to the bar. Because the offshore account was a not a US holdings, the net taxes didn't come out of his or the companies earnings. All the while he was holding public office reaping in a sizable income and a guaranteed retirement.

Don't get me wrong, my job is strickly dependant on trickle down economics, but from listening from many of my customers that represent the 10th man, the amounts of loop holes, defirmants, and tax shelters they use, keeps them far from paying that $49. there are so many private high return, low risk investments available to people in the high end tax brackets(by invitation only), that its easy for the smart ones to make more. There are some out there that don't have enough sense to manage their money( the mass majority of rich people I meet have inherited their money), find or use the tax breaks, or hire someone to do it for them. They end up burning and crashing hard, taking their defaulted loans with them for the government to bail out the banks with all of our tax money.

Just one example, the 150ft yacht parked at our marina is owned by a very sucessfull libal(ambulance chaser) attourney. The boat was built in the US, sold to him by way of an office in the BVI's. the registry is in the BVI's. He has never paid one penny of sales tax(never carried the boat to the BVI's), never paid one penny of property tax(he has to run the boat out of the country from time to time). Gets the biggest discount for fuel because he buys in volume, gets a fuel tax rebate because its a foreign vessel. Pays no sales tax on any commodities because of foreign registry and having a foreign captain. Pays no workmans comp to his employees because of foreign registry. All the while he lives accross town in his penthouse appartment, built by one of his investment companies. There is no telling just how many loopholes he benifits from. And I give him credit for being smart enough to take advantage of them all, and they are all legal.

The annalogy presented by Ferm is probably correct in the simplest form, but given all the advantages available to the higher income groups, i seriously doubt they ever pay their $49 when it all balances out.

[THEFERMANATOR]

Well if you use this as an analogy of the average upper middle class(and leave out the 1% that comprise the true upper class), then it makes sense to me. That upper 1% doesn't pay much at all, and justly they shouldn't pay as much as our current system probably says they should. My grandfather remembers the pre REAGAN era when he made his first over $100K in a year, he also remembers paying everything he made over that $100K back to the government because of our sliding scale tax system. So he went and opened up a business in the CAICOS ISLANDS(instead of renting desk space there like most do). Our country right now has some SERIOUS subscriptions(were WAY beyond issues here), and we need some MAJOR reworking to correct it. Problem being those who can make a difference, don't want it to change.

[spareparts]

One thing that really suprised me is that there are a whole lot more people in that 1% high end tax brack than you would ever think. If you doubt it, go by a large marina and add up the $$$$$$$$$$$$$ sitting at the dock. And remember, every boat that has a foreign or Deleware registry pays no property tax.