United States taxing system

[chrondi]

The following is a comprehensive explanation of the tax rebates in USA.

Subject: From a PH.D at the University of Georgia
Interesting analysis,but it`s also accurate.
Understanding our taxing system
Lesson in economics and "drinking beer"


EXPLAINING OUR UNITED STATES TAXING SYSTEM WITH BEER

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. 'Since you are all such good customers,' he said, 'I'm going to reduce the
cost of your daily beers by $20. Drinks for th e 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 t he 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% saving s).

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 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 drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something very 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 drinking overseas where the atmosphere is somewhat friendlier.

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


University of Georgia

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible!

[PBzeer]

Interesting, but the figures after the rebate are wrong. They're the same as the first group, not reflecting the savings.

[k1vsk]

only proves one thing - PhDs can't think and drink simultaneously

[42ndstreet]

Great explanation. To add to your point, the truly fair way to pay taxes would be the following: budget/population = your fair share.

[chucklesR]

42nd,
That's a commonly expressed idea, doesn't work as then a person making 50k a year pays the same tax burden as someone making 5 million a year.
Take 2006 as an example:

3.3 trillion dollar budget, 300 million americans. Those are real numbers by the way (3.3 Trillion and 300 million) that are rounded slightly to make the math simpler.

So everyone pay 11000 bucks a head - so what if you and the wife made 50k last year and have 3 kids, pay the 55k. Don't have it - take a subprime loan, maybe you'll make more next year.

No wait, that's too simple.

Would it surprize you to know that Federal Income tax on individuals only brought in 1.044 Trillion dollars , corporate Income tax another 354 billion - other taxes broung in 1.009 Trillion for a total of 2.437 trillion bucks (and then .9 trillion added to the deficit) ?
Source:
http://www.cbo.gov/ftpdocs/81xx/doc8...axRevenues.pdf

Does it suprize anyone that Corporate Income Tax totaled less than a 1/3 of the total?


Either way it doesn't work any better than a flat tax.

My daughter makes 24k a year, her tax( federal) is 2400 bucks at 10%.
Let's say my wife and I make 240k (no deducts etc) so we pay 24000.
I'd love it, that's a HELL of a lot less than I pay now.
Problem is my daughter with a bill for 2400 - right now she pays about 800, so that triples her tax burden, and she can least afford it.

Ten minutes of research

[bestfriend]

Thats more of an allegory than a "comprehensive explanation". Either way its just meant to confuse the confused. Chuckles simple real life story does a much better job at an explanation.

[chucklesR]

And let's not forget that if my daughter (using the example above) had a child she would get 'earned income credit'

Then, normally her 'refund' would be in the neighbor hood of 4000 bucks, depite the fact she only paid in about 1800 bucks - so in fact she would be getting back more than she paid.
Oh, and she could have gotten that refund if she only actually worked a couple of months, not the whole year, even if she quit her job and just laid around on food stamps an housing subsidies.

How is it 'earned income' - didn't I earn the income? How is it a 'refund' when it wasn't paid?

Get enough of this math and sooner or later I'm just going to quit going to work everyday and let ya'll support me for a while

[42ndstreet]

Then why do we all pay the same for other items?
Regarding corporate taxes, I think they are too high.

[cardiacpaul]

Chuckles,
she'd have qualified for the EIC if she'd earned wages for 15 minutes. doesn't need to be half a year or even a month. Any wages at all qualifies you.

If she's divorced and get CS, she doesn't have to claim that as income.

It ain't right, and its not fair.

[chucklesR]

CP,
I can't believe you said 'Fair' in a thread about Taxes.

42ndstreet -
taxes and prices of goods have NOTHING in common.
The reason we all pay the same price for a 1/4 pounder with cheese is because that's what it costs to make, and that's the established value at the time of sale. I'm sorry but to me asking questions like that lead me to believe you aren't qualified or capable of having a valid opinion on the level of corporate taxes being too high or too low.
Did you even read my previous post about taxes about how a 'cost per head' would be 11k?