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# Why the rich get the tax breaks and the middle class get tax hikes

Discussion in 'Politics' started by peilthetraveler, May 10, 2008.

1. ### peilthetraveler

I saw this today and I loved it. You always hear people moan about the rich getting tax breaks and this is something that will explain it very well for all those people that you have heard complain about why do the rich get tax breaks.

OUR TAX SYSTEM EXPLAINED....

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 beer by \$20. Drinks 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 drink 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 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% savings).

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 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.

2. ### SWhiting

I can't believe this idiotic 'joke' is being resurrected again to try and explain an economic fact.

In the joke, people are splitting the bar tab. In REAL LIFE it isn't a case of 'how much of the bill are you paying versus the "other guys". In REAL LIFE, it is a question of: How much can you make in this investment versus another investment. Also known as 'opportunity cost'. It does NOT matter what the 'other guy' is making.

As an aside, exactly WHERE do you think the RICH are going to "go"? They cannot take natural resources (oil, gold, real estate, etc) with them so we can always nationalize these assets. Stop licking the boots of the rich.

Finally, take my advice: do NOT recant this bullshit analogy in your thesis for an economic degree. You will fail.

3. ### dcvtss

I've modified your little story a bit:

...until one day, the owner threw them a curve. 'I've borrowed some money from my friends in Chinatown and have used it to outsource my beer buying operation to a contractor who just happened to have helped me get this bartending job. I'll be able to sell you discounted beer for awhile but I'll have to keep borrowing money to do it and my contractor really likes to buy things so you may notice the price of everything but beer going up.'

---------------------

I hope you are kidding if you think this oversimplified crap explains our convoluted, central planning in disguise tax system.

4. ### dinoman

This is already happening. Just dig around and do some research on people with money that are now leaving this country. The next big shoe to drop will be big business.

Soon enough the poor and the lazy will end with zilch.

Its nice to know that government with steal from you and give it to the lazy. You have to love democracy at its finest!

5. ### scriabinop23

This story rules something simple out: Those who make more money generally consume exponentially more, adding significantly more than their fair share to aggregate demand.

What does this mean? Remember how crude oil for example is priced on the margin, where the last barrel of crude sets the price for all crude ? Same thing. Because rich people use more resources, they drive up the prices for everyone else. So our tax system merely tries to offset this reality.

ie...

10 buyers make up the crude oil market.

4 poor guys (demand 1 barrel each)
each subsequent guy (demands 1+2^n barrels incrementally)
5th guy: 3 barrels
6th guy: 5 barrels
7th guy: 9 barrels
8th guy: 17 barrels
9th guy: 33 barrels
10th guy: 65 barrels

The 10th guy (richest guy who pays the most taxes, or lets say 10% richest of the world) is responsible for demanding almost the sum of everyone else's oil. With an oil market that is capable of producing 90 barrels/day 'cheaply', that extra 46 barrels of marginal demand drives the cost up significantly from the baseline. Should the 10th guy be required to pay taxes to offset the impact to prices he unfairly puts on everyone else? In other words, oil without his buying of 65 barrels/day might be \$25. But since he's buying, the cost to produce the extra 46 barrels drives the mkt price up to \$100. Why should the 4 poor guys have to pay 4x the oil price AND pay equal taxes when the 10th guy is already effectively 'taxing' them by pushing up price and demanding more than his fair share?

Thats the effective model of the interaction between the developed and third world. The redistribution of wealth facilitated by progressive tax systems attempts to offset this, where tiered pricing is not effectively achieved. Tax rate differences between classes applies just the same.

To a real world question, in oversimplified terms (assuming supply wouldn't be decreased as well), what would crude oil and food be priced at today if the US and EU zone reduced consumption equal to African continent per capita levels? \$5-\$10 for crude ... \$1 for wheat.

6. ### yoohoo

lol peilthetraveler and so true... unless you are rich and smart. Then you are technically poor coz your tax lawyer has seperated ownership of your assets from you and made sure you only pay tax if you want to.

Making use of conflicting international tax jurisdictions and steering clear of bilateral tax treaties are why tax lawyers earn so much... and then tell you they work for free.

Two systems - one for the poor and one for the rich (and smart). In your story the rich guy either isn't rich enough of not smart enough.

7. ### The Kin

The middle class in this country is too idiotic. They are Hillary Clinton's biggest supporters. LMAO

The sooner they disappear, the better.

Inflation will finish them off.

8. ### freewilly

What if the story goes like this?

10 men have 100 bottles of beer and the bill is \$100

The first four men (the poorest) got nothing
The fifth got 1 bottle
The sixth got 2 bottles
The seventh got 5 bottles
The eighth got 7 bottles
The ninth got 12 bottles
The tenth man (the richest) got 73 bottles.

For the bill, it goes 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.

Is this fair?

I know this is too over simplified, but do remember the government spends more on the riches. The biggest expense of uncle Sam is defense budget, that is to protect this country safe from other countries. Who has the biggest asset in the US to be protected?

9. ### nutmeg

The rich get the tax breaks because they have a choice. (usually a choice of not doing something with their money, ie invest & creating jobs). Whereas the middle class has zero choice.

10. ### Robert Weinstein

I think the biggest things saved are our freedoms and the safety of our families and our lives. If your assets are worth more than your life and freedom than your different than me. For in my opinion we all share equally in the fruits of the government. Another point isl it doesnt matter if your driving a benz or a chevy, the road is the same and available for you to drive on.

#10     May 11, 2008
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