# How taxes and tax cuts work

Discussion in 'The Lounge' started by gjk5, Jul 27, 2006.

1. ### gjk53/4 ton status

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Sorry if a repost, a friend sent it to me today:

Tax Cuts
Let's put tax cuts in terms everyone can understand.
Suppose that every day, ten men go out for dinner 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 ate dinner in the restaurant
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 meal by \$20."
Dinner 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
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 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, like the first four, now paid nothing! (100% savings).
The sixth now paid \$2 instead of \$3 (33%savings).
The seventh now paid \$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
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.
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 me!" "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 dinner, so the nine sat down and ate 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 eating overseas
where the atmosphere is somewhat friendlier.
Original penned by:
David R. Kamerschen, PhD
Professor of Economics
University of Georgia

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3. ### Desert RatFetch the comfy chair

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Let em' eat cake..........

4. ### jekbrownI am CK5Premium MemberGMOTM WinnerAuthor

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without rich people, poor people have no jobs... none. zero. nada. Our economy would rapidly be hurled into the abyss and we'd be in a only-the-strong-survives-type of dark ages. Other than that, rich people suck!

j

5. ### BoondocK51 ton statusAuthor

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Excellent analogy, I work with a very liberal guy, he's OK till we get to talking about world politics and the US economy. I don't think he'd get that little story.

6. ### Thunder3/4 ton status

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Hey be careful who sucks. If a family makes \$50,000 You are concidered rich by a Democrats standards.

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