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How taxes work

Mith

The Eccentric Englishman
SUPER Site Supporter
Grabbed this off the net, makes an interesting and thought provoking read


How Taxes Work . . .

This is a VERY simple way to understand the tax laws. Read on -- it does make you think!!

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 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 $7, the eighth $12, the ninth $18, and 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 threw them a curve (in tax language a tax cut).

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20." So now dinner for the ten only cost $80.00.

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 — 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 the amounts 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 who 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, a little late what was very important. They were FIFTY-TWO DOLLARS short of paying the bill! Imagine that!

And that, boys and girls, journalists and college instructors, is how the 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 at the table anymore.

Where would that leave the rest? Unfortunately, most taxing authorities anywhere cannot seem to grasp this rather straightforward logic!
 

OkeeDon

New member
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, a little late what was very important. They were FIFTY-TWO DOLLARS short of paying the bill! Imagine that!
The tenth man either went hungry or had to move to another country in order to eat. He had his $52, but what good does it do him if he can't buy food? Sure, he could open a new restaurant, but he wouldn't be able to hire any cooks, waiters, busboys or dishwashers, because they all starved to death without his help in buying them their meals.

So, the first 9 starved because they couldn't afford the dinners without the 10th guy's help, and the 10th guy starved because he couldn't buy any dinners, but the taxes were reformed!
 

DaveNay

Klaatu barada nikto
SUPER Site Supporter
Actually Don, the restaurant closed because it got damaged in the bomb blast from the doctors clinic across the street that radical fundamentalists blew up.
 

thcri

Gone But Not Forgotten
OkeeDon said:
The tenth man either went hungry or had to move to another country in order to eat. He had his $52, but what good does it do him if he can't buy food? Sure, he could open a new restaurant, but he wouldn't be able to hire any cooks, waiters, busboys or dishwashers, because they all starved to death without his help in buying them their meals.


Don, you just seem to amaze me. Did you create the class in the public school systems called Debate? You seem to have an answer for everything. But the tenth guy did not go hungry because he did have the money to go else where and he did.:pat: Man with $52.00 in his pocket don't go hungry.


murph
 

Melensdad

Jerk in a Hawaiian Shirt & SNOWCAT Moderator
Staff member
GOLD Site Supporter
Murph, I'm in agreement with you. They guy changed eating establishments, he went to one where he gets preferential treatment, the others either starve or eat at lesser establishments than the prior one.

What amazes me are the folks who do OK in life but spend huge amounts of effort to beat the taxman. They were never poor, nor were they rich, but they end up paying perhaps 10% to 12% in taxes when others of similar income paid double. Now some may call these people who do this smarter than normal, but really they are simply folks who take advantage of the system and abuse it. That is why I claim very little of my charity work as tax deductions.
 

bczoom

Super Moderator
Staff member
GOLD Site Supporter
B_Skurka said:
What amazes me are the folks who do OK in life but spend huge amounts of effort to beat the taxman.
I don't try to beat the taxman but I have been trying to find out the HUGE disparity in my property taxes compared to other places. I'm paying double what a guy down the road is and he has 10x the land with 3 houses on it. Another guy just built a $4,000,000 house on over 100 acres and his taxes are only 3x mine...
 

thcri

Gone But Not Forgotten
bczoom said:
I'm paying double what a guy down the road is and he has 10x the land with 3 houses on it.


Brian,

Why don't you put three houses on your property and get your taxes down??:D
 

bczoom

Super Moderator
Staff member
GOLD Site Supporter
thcri said:
Brian,

Why don't you put three houses on your property and get your taxes down??:D
I may have to.
I was thinking of moving the bunker here (since Dargo doesn't want to pay to ship it all the way to his house).

I've been putting Miracle Gro on the lawn but every time I measure my property, it's still the same (and not enough for the bunker). :confused:
 

DaveNay

Klaatu barada nikto
SUPER Site Supporter
thcri said:
Brian,

Why don't you put three houses on your property and get your taxes down??:D

Hey Murph....is it true in MN that because the lakes are considered public property, and you can only own up to the shoreline as private property, that they always do the tax assessments in the late summer when it is hot and dry and the lakes are smaller?

Sounds like the evil trick the assessors office would use.
 

OkeeDon

New member
Where else could he go? The story equated the cost of dinner to national taxes. If one doesn't to pay the taxes, one has to move somewhere else where the taxes are lower. Using the metaphor of the restaurant, if one doesn't want to pay the assessment for dinner, one has to leave the country and find a cheaper restaturant, where, no doubt, the food won't be as good. Of course, the reason why the restaurant will be cheaper is because all the help is underpaid, but that's just the ticket for the Right Wing! Screw 'em if they can't take a joke!
 

bczoom

Super Moderator
Staff member
GOLD Site Supporter
And the other 9 lived happily ever after. :thumb: (until everything went to crap since they couldn't respect/understand that they had a good thing going and squeezed their meal ticket just a little too tight)
 

Spiffy1

Huh?
SUPER Site Supporter
No, he doesn't go to a new establishment [Cuba, Mexico?]. He hires some fancy accountant to pay the restaruant as little as possible without making them cranky, eat's there as often as he likes, but also hires his own cook for most meals and ignores everyone who doesn't like it.

Dang...if only I had the "$52"......:pat:
 

Cityboy

Banned
OkeeDon said:
The tenth man either went hungry or had to move to another country in order to eat. He had his $52, but what good does it do him if he can't buy food? Sure, he could open a new restaurant, but he wouldn't be able to hire any cooks, waiters, busboys or dishwashers, because they all starved to death without his help in buying them their meals.

So, the first 9 starved because they couldn't afford the dinners without the 10th guy's help, and the 10th guy starved because he couldn't buy any dinners, but the taxes were reformed!

This little story came out a few years ago to refute those who continually parroted the "tax-cuts for the rich" mantra. Under our latest tax cuts, many people were removed from the tax roles completely and all brackets were lowered. The Left continued to whine that only "rich" people got the tax cut, and that some got nothing, which of course, is not true. This story shows that if you pay a more in taxes to begin with, mathematics dictates that your tax cut will be a higher dollar amount than someone who paid less taxes. If you were in the lower tax brackets, naturally, you will not get back as much as the people in the higher tax brackets because you did not pay as much. Simple concept, but I can guess who is about to argue otherwise. :rolleyes:
 

OkeeDon

New member
Oh, I understand the concept behind the story very well. However, I also understand that the story is a little shortsighted. The guy with the $52 won't have much of a life without the peons around to make things and grow things and cook things and clean things, and if he wants to hoard his tax money and stick it in the vault like Scrooge McDuck, the little people won't be around any longer. I don't think he'd like it very much if he had to open his own doors and clean his own toilets. He'd soon think it was worth it to have good help.

I can also take umbrage with the numbers in the story. If it was 100 guys instead of 10, and if the top guy was paying $38 instead of $52, and all the other numbers were adjusted accordingly, it would be a lot more accurate. When Clinton and the Democratic Congress raised taxes in 1993 in order to reduce the deficit and eventually produce a surplus budget, only the top 1.2% had an income tax increase, or about 1 person out of 100.

Then the story has the restaurant owner, who represents our national governmet, reduce the cost of the meals from $80 to $100, and pass on the savings. Unfortunately, in this case he has increased the cost of the meal, is spending a lot more on perks for the restaurant owners, and still decreased the price of the meals. In order to not go out of business he has to borrow outlandish amounts of money and pay lots of interest, which raises his costs even higher. He doesn't have to worry about it, however, because he just borrows more to pay the interest (interest on interest!), and will leave it to his grandkids to figure out how to bail out the restaurant.

All that's OK, however, because in the meantime our one guy out of a hundred, who already has more money than God, gets to hoard more of it. The other 99 guys, including most of you (unless you're in the top 1.2% of income in the nation) get screwed. The sad part is, most of the folks who support this are getting screwed by the fat cats and don't even realize it.

Don
 

Spiffy1

Huh?
SUPER Site Supporter
Don you analyzed the tale well, but when you brought it back into the realm of taxes, using percentages levied rather than the net percentages per party collected still dismissed the fact the heavier you tax, the more the rich guy will pay his accountants to pay less tax!

You did hit on an even bigger point, that's not part of the tale:

Mith, I don't know about Parliment, but even the most "honest" politicians around here make so many election promises, that it's almost a contest of who can bring home the most "pork" regardless of which party is in power.
 

Cityboy

Banned
Before I dismantle Don's post peice by peice, here is a link using IRS statistics showing who actually pays the taxes in the United States. This in itself proves the Left wrong.

http://www.allegromedia.com/sugi/taxes/

Fact: The top 1% of income earners in the United States pay 29% of the taxes.

Fact: The top 5% of income earners in the United States pay 50% of the taxes.

We oughta stick it to those rich bastards some more, right Don?
 

Melensdad

Jerk in a Hawaiian Shirt & SNOWCAT Moderator
Staff member
GOLD Site Supporter
Yup, right wing upper income types are just greedy bastards! And still the Republicans caved into the liberal do-good types and we pumped more federal dollars into education under Dub Ya and saw test results go down. I could go on and on about federal spending being out of control and a waste, but then I would sound greeding instead of logical. We fund all the feel good stuff and the results get worse. Hmmmmmm.
 

Cityboy

Banned
OkeeDon said:
The guy with the $52 won't have much of a life without the peons around to make things and grow things and cook things and clean things, and if he wants to hoard his tax money and stick it in the vault like Scrooge McDuck, the little people won't be around any longer.

Sometimes I think you like pulling peoples leg, Don. I find it difficult to conceive you actually believe that statement. Economics 101: Do you honestly believe that any person who has achieved even a modicum of financial success would put his money in a vault? We all know that money is made only when it is moving; that is, when it is invested in a business, the stock market, bond market etc. People do not become wealthy by stuffing their earnings in a mattress.

OkeeDon said:
When Clinton and the Democratic Congress raised taxes in 1993 in order to reduce the deficit and eventually produce a surplus budget, only the top 1.2% had an income tax increase, or about 1 person out of 100.

I have heard it said that if you repeat a lie over and over again, you eventually come to believe it yourself. Clinton initially had no intention of balancing the budget and there are many news media sound bites that recorded this fact. Clinton raised taxes to fund more social programs, not because he had a keen sense of fiscal responsibility. The “surplus” the Left refers to never materialized. It was a projected surplus. The economy was already in a downturn before Clinton ever left office. When Bush was elected, the Left went from referring to the “projected surplus”, to calling it an actual surplus and accused Bush of “squandering” it even before his inauguration. Before you ask me if I am calling you a liar again, Don, show me the money that the Left claims Bush squandered. Show me the checking account statement of the U.S. Treasury with a positive balance.

Now, as to the statement that only about 1 in 100 got a tax increase with Clintons hike, well, I must have been one of those guys because I know for a fact I paid more because I wrote the check, and I have not yet reached the top 1%, but I am working diligently to get there. Clinton tried to slip taxes in everywhere he could. Looked at you phone bill lately? That was Al Gores baby. Remember the proposed “imputed income tax”? That’s where those who have a paid off home pay tax based on value of their home. Clinton also attempted to tax 401K accounts, and let’s not forget “Hillary Care”. None of those ideas went over very well with the tax paying public.

OkeeDon said:
All that's OK, however, because in the meantime our one guy out of a hundred, who already has more money than God, gets to hoard more of it. The other 99 guys, including most of you (unless you're in the top 1.2% of income in the nation) get screwed.


There you go again with the “hoarding” argument. Repeat it until you believe it. Tell me Don, how many poor people have you ever worked for in your life? These “rich” guys you rail against are the people who have worked hard, sacrificed and saved, mortgaged their homes and risked their savings to start a business that employs those less ambitious. Yet you continue to deride these people and scream that they should pay even more of the tax burden than they already do. Why not push for a tax on the idle rich like Ted Kennedy instead of punishing society’s achievers? Come on Don. Its time to put the “tax-cuts-for-the-rich” mantra to bed. Its so tired, worn out and untrue that it needs a permanent rest.
 

OkeeDon

New member
Sorry, Cityboy, you're a hopeless cause. Not worth my time. You ignored much of my post, picked out one or two things to rant about (like hoarding) and misinterpreted the rest. You'll never understand even if I hit you upside the head with a 2x4 to get your attention. Those who are open minded enough to seriously consider what I said have done so, with or without you.
 

Spiffy1

Huh?
SUPER Site Supporter
B_Skurka said:
We fund all the feel good stuff and the results get worse. Hmmmmmm.
Well put Bob!

I'd just love to see DC wise up and jerk everything cold turkey. I wonder how many years it would take to break the cycle of free loaders?

Cold maybe....but I'd rather make someone hungry enough to find the pond, than give a them fish and have them come back hungry the next day and everyday there after.
 
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