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Are tax cuts unfair to low earners?
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Here is a story that may give you another view if taxes and tax cuts are unfairly advantageous for higher earners.
Suppose that every day, ten people 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 people (the poorest) would pay nothing.
The fifth would pay $1
The sixth would pay $3
The seventh $7
The eighth $12
The Ninth $18
The tenth person (the richest) would pay $59
So, that's what they decided to do. The ten people 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." So now dinner for the ten only cost $80.
The group still wanted to pay their bill the way we pay our taxes. So, the first four people were unaffected. They would still eat for free. But what about the other six, the paying customers? How could they divvy up the windfall so that everyone would get his 'fair share'? The six people realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth person and sixth person would each end up being 'PAID' to eat their meal.
So, the restaurant owner suggested that it would be fair to reduce each person's bill by roughly the same amount and he proceeded to work out the amounts each should pay. And so:
The fifth person, like the first four, now paid nothing (100% savings)
The sixth now pays $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 people began to compare their savings. "I only got a dollar out of the $20," declared the sixth person. He pointed to the tenth person "but he got $10!". "Yeah, that's right," exclaimed the fifth person. "I only saved a dollar too. It's unfair that he got ten times more than I got!" "That's true!!" shouted the seventh person. "Why should he get $10 back when I only got $2? The wealthy get all the breaks!"
"Wait a minute," yelled the first four people in unison. "We didn't get anything at all. The system exploits the poor!" The nine people surrounded the tenth and beat him up.
The next night the tenth person 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 at the table anymore. There are lots of good restaurants in Europe and the Caribbean.
2009-07-15, 07:13:39 (updated: 2009-07-15, 07:14:23)
anonymous from United States
I don't know anyone who would go out to dinner, pay less based on their income and then beat up the guy who made the most at the table because he got the larger discount from the restaurant. I know it's a fictitious story but still the end of the story doesn't make sense and is over the top just to *try* prove your point.
The rich are 'attacked' as you say because some of them use tax tricks to maximize their deductions or avoid taxes altogether which normal people can't do because they can't afford the fancy accountant. They hide their money offshore or form a corporation to avoid even more taxes.
The rich are already in Europe and the Caribbean since they have enough money to have multiple homes and/or they are buying investments/currency from those countries. Don't think so? Find out who the US owes in debt. You'll find the usual suspects like China and Japan but who is the Carribean Banks? and how do they have 200+ Billion dollars to loan to the US? That's right the rich!!! The offshore financial haven of the US elite is the Caribbean.
I wish we lived in a true merit-ocracy but we don't. We don't have people start out equal in this Capitalist society and succeed based upon their own intelligence and effort. Instead we have a lot of nepotism: My son is going to go to the best schools who will then get a job in his fathers company or through a company the family knows. Then they are making six figures in their 20s.
Soon they have a mortgage in their mid twenties so they can start writing off their mortgage interest while the regular joe is still renting while trying to scrape togther enough for a down payment. Regular Joe doesnt have any of the advantages of his silver spoon counterpart.
The system should work in a way that if you make more money it is because the system is working and you need to pay more to the system. The way it works now is the poor do not pay much taxes (which is somewhat understandable), the rich don't pay much taxes because they use the tax system to hide as much as they can with their accountant, and the finally the middle class takes the brunt of the taxes. The middle makes more money so they pay more in but they can't afford the trickster accountant to hide most of their money.
I am not against the rich but let's be clear that your story is flawed. More true to life, the richest two people at the table would use an accountant to make themselves look like the third and fourth richest at the table. So it ends up that the middle class at the table pay more than their share. The problem is that this has gone on so long that the middle class is shrinking in the US; the most of the middle class is becoming poorer while some have gotten to the point of becoming rich enough to start hiding money. While the rich become even richer. Is that fair when the rich are clearly capitalizing on the system but paying less of their income to payback to that system?
Of course it's more complicated than that but your story is seriously flawed. I actually I read this dumb story in a chain letter a few times. It's far right wing propoganda. I am centrist and I filter out all the BS from the far left and the far right.
anonymous from United States
How do you figure the rich pay 59%, or even 49% income tax?
anonymous from Australia
An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama's socialism worked and that no one would be poor and no one would be rich, a great equalizer.
The professor then said, 'OK, we will have an experiment in this class on Obama's plan'. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A.... (substituting grades for dollars - something closer to home and more readily understood by all).
After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.
The second test average was a D! No one was happy.
When the 3rd test rolled around, the average was an F.
As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.
To their great surprise, ALL FAILED and the professor told them that SOCIALISM would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.
It could not be any simpler than that. (Please pass this on)
Remember, there IS a test coming up. The 2011 elections.
These are possibly the 5 best sentences you'll ever read and all applicable to this experiment:
1.. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody anything that the government does not first take from somebody else.
4. You cannot multiply wealth by dividing it!
5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.
Can you think of a reason for not sharing this? Neither could I.