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Tax Laws 101!!
By admin | March 31, 2008
Ok—I’m totally stealing this from Dax Desai.com but honestly—it was the first time someone actually explained taxes really well! I don’t even drink beer–but understood this one! I’ve always wonder why people get so unhappy when we give “the rich” tax breaks…well…duh…because they are the ones that pay MOST of the taxes!! We are a Capitolistic society…it works…some people have more than other…if you want more…work harder! But get off the pity party of tax breaks for the rich, and make your own life better!
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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.
David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia
Topics: Uncategorized |
April 5th, 2008 at 9:42 am
I love the way this is laid out! I can’t believe how many people don’t get it
Kris’s last blog post..I Think Its Time For a New Look…
April 24th, 2008 at 7:12 am
What an awesome explanation! Of course, if someone pointed out to the first four guys in the first place that they couldn’t afford a beer without mooching off of the others they’d have said such a comment was insulting and offensive… rather than a mere fact.
Kate’s last blog post..Be My Guest (Blogger)
May 1st, 2008 at 2:25 pm
This is a great representation of the tax system! I’d never heard this one before but I’ll make sure to look back to it when I need to teach this to the kids. Thanks!
May 13th, 2008 at 9:07 am
How clear the explanation is! I never thought the benefit to pay the high taxes before. I would not complain anymore for the high taxes.
June 10th, 2008 at 1:39 pm
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