Journal Blackneto's Journal: A Simple Way To Understand The Tax System 20
Found at http://www.johnziegler.com
A Simple Way To Understand The Tax System
This is a VERY simple way to understand the tax laws
Let's put tax cuts in terms everyone can understand.
Suppose that every day, ten men go out for dinner.
The bill for all ten comes to $100.
If they paid their bill the way wepay our taxes, it would gosomething like this:
The first four men -- 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 man -- the richest -- would pay $59.
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 decided to give them a break.
"Since you are all such good customers," he said, "I'm going to reducethe cost of your daily meal by $20."
So now dinner for the ten only cost $80.
The group still wanted to paytheir 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 -- the paying customers?
How could they divvy up the $20 windfall so that everyone would get his "fair share?"
The six men 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 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 theamounts each should pay.
And so the fifth man paid nothing,
the sixth pitched in $2,
the seventh paid $5,
the eighth paid $9,
the ninth paid $12,
leaving the tenth man with a bill of $52 instead of his earlier $59.
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. "But he got $7!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got seven times more than me!"
"That's true!" shouted the seventh man. "Why should he get $7 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 he 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 were $52 short!!
And that, journalists and college professors, is how the tax system works.
You forgot to add... (Score:1)
And the 5th thru 9th man worked for the 10th man, who's salary was 40 times their combined salaries.
And don't forget that when the 9 men beat the 10th man, they found enough money hidden in his jacket to buy lunch for the rest of their lives.
Re:You forgot to add... (Score:2)
Re:You forgot to add... (Score:2)
the part you're missing (Score:1)
The fifth works at McDonalds. Most all his salary goes to living expenses. After $1 on dinner, he is broke. He ordered a soda.
The sixth is an office worker. He does alright, and the $3 doesn't hurt him. He got a soup to eat.
The seventh and eight live in the burbs, do well, but still complain about the $7. They get burgers with fries.
The eighth and ninth are exectutives who should really be paying $20 each, but they claim to make less than they do with some creative accounting. They each had the chicken entree with a glass of wine.
The tenth man -- the richest -- is making more than 100 times what the sixth guy makes. If all were paying on a flat percentage of true earnings, he'd have to pay at least $80. At dinner, he drank half a bottle of Champagne, but then complained it wasn't good enough, and had it deducted from his bill. He sent his Filet Mignon back 3 times because it wasn't as rare as he liked it, and then changed his order to Veal Oscar. He did approve of the caviar, but complained that the first four stole all the crackers.
Re:the part you're missing (Score:2)
I used to be the McDonalds worker. I thought things were unfair, rich too rich, poor too poor.
then I got out of school and got a real job, started and lost a couple of businesses and basically worked my ass off till I got to the level of the guys eating the chicken.
And after sending off my quarterly payment today, I'm all for any tax cut no matter who it benefits. I'm tired of having to save 30% of my recievables for taxes.
One day I hope to be the 10th man. Well except for the beating.
Re:the part you're missing (Score:2)
Re:the part you're missing (Score:2)
Re:the part you're missing (Score:2)
So if the guy who paid $3 is paying 30%, he makes $10 (per whatever). Then by my bogus numbers for the richest as earning 100xs that, the rich guy would make $1000, and should be THRILLED to only pay 8% of his true earnings (most of which aren't really counted -- otherwise, at 30%, his reported income minus deductibles would be about $267 for every $10 of the 6th guy).
BUT my example is as untrue as the orignal subject. Just for starters, 4 out of 10 Americans are NOT below the poverty line. In truth the cut off for the lowest 40% of Americans are those making $29K or less. If you're making 25K, I betcha you're paying *something* in taxes. Only 16-18% (depending on how you count income deductions) are at $19K or less. They're the one who eat for free.
Re:the part you're missing (Score:2)
Now, I don't know the richest people in the world. I also don't know that many very rich people. But the very rich people that I do know, and those that I know that are moderately wealthy, are not picky, have all been waiters/waitresses at some point and would never put a server through that, and they all have one thing in common: they are frugal. The thing that I have noted separates the very rich from the moderately rich from the merely well-to-do is the level of frugality. The very rich order the cheap special, the moderately rich order the chicken or vegetable entres, and the middle-class order the beef. The very rich order the Lienies' pint for $1, the moderately rich order the Guiness pint for $3, and the middle-class order the import bottle for $5.
I think it takes something other than frugality to end up very rich. But to be moderately rich, you just have to make money and hang on to it.
That's just my experience. Of course, NY standards and my standards are probably a little different... I look at the very rich as netting more than US$1,000,000/yr, the moderately rich as more than US$300,000, and the well-to-do as more than $100,000. I only make half that. But I'm starting to figure out that if I want to fall at least in the moderately rich category, I need to save every dime I have and learn to invest it... learn to behave like a rich person who cares about my dimes a little more.
Re:the part you're missing (Score:2)
Mere Millionares are nothing. Its the folks making over a million each YEAR that interest me. The only family I know in the top 10% of the income earners are Old Money. They might make frugal choices for home meals, but not for a dinner out. Their houses are Tasteful -- nothing as vulgarly nouveau riche as the stuff the Lay's acquired.
All that as an aside, we're using the dinner to talk about what the government gives you for your tax dollar. The one-in-ten situation is terribly misleading because the top 1% is making a helluva lot more than the other 9% of the top bracket, and the amount they report as income tends to be far below their actual earnings. Here's a really loaded and biased reprint from USA Today [house.gov] that goes off on how rich the very rich can be. It also spouts off on a bunch of other things.
There are 2 things that bug me about complaints that the rich are overtaxed. 1) The assests of the rich are less likely to show up on tax returns because they are more likely to put their money in shelters (so their adjusted gross income is a fraction of the salary they were paid, and 2) there's a difference between available and disposable income. Everyone has expenses that they can't avoid, and aren't going to get cheaper (ex.: if are a working adult, you need housing, food, and probably electricity). You can choose to get a nicer house or nicer food, but there is a base amount that you can't avoid spending. The richer you are, the more able you are to choose home much to blow. The poor don't get much choice on that -- yet they still choose poorly (see cigarette smoking as a negative indicator of wealth).
With ALLLllll that said, I still think the economy could use more $$ in the hands of the public. I just don't want to see loaded numbers.
Re:the part you're missing (Score:2)
I think a lot of the new rich are just as stupid as all the poor people in the country would be if we gave them all a million dollars.
More money in the hands of the public would be great, but what would they do with it? I don't know if you saw the movie Barbershop, but there was a scene were they were debating reparations for black people. Eddie (the character played by Cedric the Entertainer) said "all that would do is make Cadillac the number one dealership in America." The point being most people when given something like a lump sum of money really wouldn't be productive with it.
2 things really screw poor people over. Cigarettes and Lottery. both are a tax on the stupid. I think somebody in gmhowells JE said that he paid 9000 a year for smokes. $9000! thats my household expenses for almost 3 months. (mortgage, carpayment, utilities, etc...) Theres a helping hand people that smoke can give themselves.
Minimum wage is another problem. Not that it exists, but the fact that some people grow up thinking they can live on it. People need to be trained how money works. Preferrably at home but even in school. Realistic budgeting and job planning need to start in Junior High. It seems that almost nothing is taught in High School anymore. There no reason that anyone over 20 should be working at a fast food joint unless it's supplemental income.
But for those non-minimum wage jobs to exists there has to be an incentive for the people with money to want to do the things that create more jobs. Thats where all these tax cuts and concessions come in that everyone seems to think only benefit the rich. If the rich or well off aren't spending or investing money how does it trickle down in the form of Service Jobs, Product manufaturing, ect...
On the issue as to how much a person really needs or should be able to hold onto. I think they can have much as they legally can get. Thats why I love capitalism. Seriously though no one really needs more than food, water, clothing, shelter and air. I think the Soviets tried to prove that point and failed.
Re:the part you're missing (Score:1)
Great movie! I didn't care for the sub-plot about stealing the ATM, but the rest of it was fantastic. On the Cadillac thing, stupid spending is still fine for the economy -- just sucks for the individual. No bitching about your circumstances allowed if you're blowing $$ on dumb stuff....unless, of course, *I'm* the one bitching.
they can have as much as they legally can get
I agree with that in general, but I'm not sure how we got to that point. All I meant to say (and never quite got around to saying) is that I don't have a problem with paying more taxes as I earn more money -- ESPECIALLY when I know that the more I earn, the more likely I am to shelter a chunk of my earnings. Also, I don't mind my local school/property taxes because I expect that the better we educate kids, the less likely they are to commit crimes (though going to Church regularly has a greater correlation to avoiding crime). There's room to debate how funding relates to the quality of education, but it'd be getting way off topic.
Re:the part you're missing (Score:2)
I look at the very rich as netting more than US$1,000,000/yr...
Mere Millionares are nothing. Its the folks making over a million each YEAR that interest me.
That's what I said. The people I know that don't just make over a million a year, but who net that are the people I know that are the most frugal... more frugal than you or I. I think that's how they keep netting that much.
When I was in college one of them bought me a printer/copier/scanner/fax, and most other people I know were flabbergasted... "He spent money?" Of course, there's another word for that that we could perhaps use in lieu of frugal... miserly.
cheap bastid... (Score:2)
I am currently doing a so-so job at it. maybe I don't need to drink that expensive gin... maybe the cheap stuff will do just fine.
Re:cheap bastid... (Score:2)
I can drink cheap beer if somebody gave it to me, but never cheap scotch. has to be single malt at least 15yrs old. Now that is a luxury. which means not something that is necessary. I only get a bottle every few months but it makes life nicer.
Re:cheap bastid... (Score:2)
But its the luxuries that I need to cut down on.
Re:the part you're missing (Score:2)
The point you're STILL missing is that spending money on an actual meal is only an analogy for paying taxes. My complaints are meant to resemble ways to milk the system (getting special tax exemptions, deferred earnings, write-offs, etc.). When was the last time you got to Endow a Trust and use it as a write-off that still gave you benefit? Or got the government to float your business in an effort to help Industry? *That's* the sort of thing the caviar is meant to represent. It isn't lavish spending by the individual, but lavish benefits from the government.
Re:the part you're missing (Score:2)
Unreal. She thought: "Crap, my husband is going to jail and the Justice Department is going to confiscate all of my stuff. I'd better sell it and move to Switzerland."
Kind of makes me wish we had instituted the guillotine...
Re:the part you're missing (Score:1)
First, I should be in a position to increase my mortgage payment by 10%. Not much, but it either pays off the house much quicker, or gets me a little nicer digs.
Second... Had some thoughts about wealth and all that, but I can't think straight right now.