How Our Tax System Works (or not).

I read this somewhere before, but thanks to the DHM at www.heartkeepercommonroom.blogspot.com, I now have it right here for all of you. I'm glad I'll be able to go back and see it again, because, being a little slow, I need the reminder sometimes. And now we know why rich people hate taxes. They already are taking more than the lion's share on their shoulders, and it's never enough for some people.

May I also add that those people are also paying some of the highest taxes for roads and schools that they may or may not use very much, and for health care programs they most certainly are not enrolled in. They are paying lots, often for things they don't believe in.

Don't bite the hand that feeds you.


Tuesday, August 19, 2008
Tax Fairness

From the Tuesday Links post at Maggie's Farm:

What is "fair" about taking the money you earned? How can it be done fairly? Obama wants more "tax fairness." How do you get more "fair" than this:

As we come to the end of the Bush administration, the top 1% of American taxpayers already pay 40% of all income taxes -- the highest level in 40 years. The top 10% of income earners pay 71% of the taxes.

That is beyond fair, and it leaves 90% of the population as minimal contributors to the nation. There is an obvious danger in becoming a nation of 90% "getters" and 10% givers - and not the least being that you discourage the givers.



Suppose that every day, ten men go out for Ice Cream 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 in the Ice Cream Parlor 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 Ice Cream by $20. Ice Cream 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 his Ice Cream. So, the parlor 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 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 $1 - 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 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 Ice Cream, so the nine sat down and had Ice Cream 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 deduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start eating Ice Cream overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.