The truth about tax breaks

Discussion in 'Economics' started by slapshot, Mar 22, 2008.

  1. With 4 out of 10 people in this USA country paying basically no federal taxes*** and 2 out of 10 barely paying any, leaving it up to the top 40% of earners to pay 95% of the nations taxes, it is time for me to re-post this excellent, simplistic example of how it really works.

    (***a.k.a. "NTP's" = "Non-Tax-Payers")

    Remember when it comes to voting for presidents and senators that 4 of 10 people are going to vote what to do with your money with the expectation that they will get more of it from a Democratic congress and president in office at the same time.


    Keep raising taxes...and this is what we’ll get!

    “Bar Economics”

    Suppose that every day; ten men go out for beer.
    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 four poorest men 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 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 beer by $20.” So the drinks for the ten men 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 free. But what about the other six men, the actual 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 now paid nothing (100% savings).
    The sixth paid $ 2 instead of $ 3 (33% savings).
    The seventh paid $ 5 instead of $ 7 (28% savings).
    The eighth paid $ 9 instead of $12 (25% savings).
    The ninth paid $14 instead of $18 (22% savings).
    The tenth paid $49 instead of $59 (16% savings).

    Each of the six was better off than before.
    And the first four continued to drink free.
    Outside, 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 did!'

    “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!”

    So 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 important. Without the tenth man, 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 (but the least percent tax reduction).

    Tax them too much, attack them for being wealthy, and they may not show up anymore.

    In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

    For those who understand, no explanation is needed.

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

    (also included in PDF for you to send to your whiny liberal NTP friends and liberal acquaintances)
  2. That is classic!

    And absolutely true. Jacking up the top rates and doubling capital gains would be a disaster. Its a spending problem anyway, not a revenue one.
  3. Friends, Americans, countrymen, lend me your ears.

    The time has come for a single, flat tax.

    A tax that is neither regressive nor progressive, and incorporates no sliding scale.

    A tax that shows no bias.

    A tax that is so simple to compute, it can be calculated with a single pencil, and the formula used can fit on a post it note.

    That formula is this:

    Gross income x 0.15 = tax paid.

    Nothing less, nothing more.

    A 15% flat tax.


    Screw all accountants, tax lawyers and bureaucrats.
  4. I agree completely. Major problems though.

    First of all, the US takes in 19% of gross income historically, regardless of the tax scheme in effect, so you are going to need higher taxes. (Its interesting how it hovers at 19%).

    The US currently takes 26.8% of GDP in overall taxation (this includes corporate, everything).

    Gotta make up for the shortfall someplace.

    Also, losing the mortgage write off is going to create a large batch of screaming home owners.
  5. Replace income tax with a national sales tax.

    In the grand scheme of things, we don't need problems like income tax or world wars at all, but that would require a different thought process from what we have today:

    "No State shall [...] make any Thing but gold and silver Coin a Tender in Payment of Debts;"

    "I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale. "
  6. A flat tax is what we need. It is fair and brings stability.