bmetzler's Journal: "Understanding Tax Cuts"

Some of you may have trouble understanding way tax cuts 'favor' the rich. I'm posting this short story to help you out.

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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. Please read it carefully.

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).

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.

David R. Kamerschen, Ph.D Professor of Economics University of Georgia

something like that...

[bryanthompson]

this was posted by one of the women in my class. I like it.

"A teenage girl was about to finish her first year of college. She considered herself to be a very liberal Democrat and her father was a rather staunch Republican.

One day she was challenging her father on his beliefs and his opposition to programs like welfare. He stopped her and asked her how she was doing in school. She answered that she had a 4.0 GPA but it was really tough. She had to study all the time, never had time to go out and party and often went sleepless because of all the studying. She didn't have time for a boyfriend and didn't really have many college friends because of all her studying.

He then asked how her friend Mary, who was attending the same college was doing. She replied that she was barely getting by. She had a 2.0 GPA, never studied, was very popular on campus and was at parties all the time. She often wouldn't show up for classes because she was hung over.

He then asked his daughter why she didn't go to the Dean's office and ask why she couldn't take 1.0 off her 4.0 and give it to her friend who only had a 2.0. That way they would both have a 3.0 GPA.

The daughter fired back and said "That wouldn't be fair, I worked really hard for mine and my friend has done nothing."
The father smiled and said: "Welcome to the Republican Party"."

Re:something like that...

[robi2106]

Bingo! I like it!

But on a more serious note, can someone spare a few GPA points for me???

jason

+1 Awesome Story

[eugene ts wong]

Bryan and Brent, I love your stories.

Alas,

[mgessner]

From the professor's webpage [uga.edu], "Contrary to Internet folklore, Dr. Kamerschen is NOT the author of 'Tax Cuts: A Simple Lesson in Economics.' Additionally, he does *NOT* know who wrote it."

I got an email about it, too. It's still an interesting piece. I wonder if anybody's done any work on verifying it's validity, even if the author is unknown.

Re:Alas,

[RevAaron]

Heh, not surprising that something like this would have some prof with nothing to do with this given credit. It gives it an air of credibility to a story that makes a lot of intuitive sense to folks without any training in economics. If a professor of economics said it, it must be true! This is something that republicans have gotten very good at in recent years- appealing with partial-logic to people's emotions and intuitive senatibilities. It was something that Adolf Hitler was really good at [tripod.com]- though d

Re:Alas,

[trixillion]

Ding.. give this man a prize. The appropriate anology is that the restaraunt owner gives them $20's off but later they will have to repay it. The fear is that the new rates will be applied to the future payment, in which case the middle class pays more than if they had stuck with the original scheme.

That Was a Stupid "Illustration"

[the_mad_poster]

Simple view for a simple mind, I suppose.

Yes, yes, the percentages game. What it fails to take into consideration is this:

If I am making $15,000 per year, and I am paying 10% in taxes, I have $13,500 per year to survive on, all of which I must spend just to stay alive.

If I am making $1.5 million per year, and I am paying 50% in taxes, I have $750,000 per year to survive on, only, say, $250,000 of it I need to spend to survive at my chosen level of comfort.

So, when you give a tax cut to the richest peopl

Re:That Was a Stupid "Illustration"

[Carbonite]

No one making $15,000 per year is paying anywhere near 10% in taxes. After you subtract the standard deduction for Mama Johnson and her dependents, it's very likely she has zero federal tax liability. The size of the tax cut doesn't matter because she doesn't owe anything.

Re:That Was a Stupid "Illustration"

[Marxist Hacker 42]

FICA and State taxes in Oregon on a $15,000/year income would come to about 10%- even without other federal income taxes.

Re:That Was a Stupid "Illustration"

[Nicksag33k]

So your saying the rich should pay for the poor. What have the poor done for the rich that would make them want to pay for their laziness and poor life choices.

I for one have been working my way up the proverbial ladder my entire life, as long as I keep working I'll move up. But if I stop, well, I'll just become another Coach Potato American looking to the Rich to pay for my back pains.

I'm for the Fair Tax http://www.fairtax.org/ [fairtax.org]

Re:That Was a Stupid "Illustration"

[the_mad_poster]

Fair tax. [devshed.com] Bullshit. I'm the four-eyed clown. Don't revive the thread because it's dead - if you have an issue with it, post here. Penalty on the poor because they can't afford to save money or invest. HUGE tax cuts on the rich who can. In other words, you make the poor pay more of the tax burden just so the rich can take even more money out of the system and solidify it at the top of the totem pole.

And, no, I'm not saying the poor should "pay for" the rich. You're simplifying things again because god forbi