Tax cuts explained.

[Scotty]

Let's put tax cuts in terms everyone can understand...

 

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 on 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.

 

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

[coxx]

:lol:

[Need4Speed]

Amen!

[legacy_y_tu]

:lol: Preach it brothaaaa!!!

[Need4Speed]

Where are the people to debate this????

 

I'd love to see an attempt.

[fj1200]

Where are the people to debate this????

 

I'd love to see an attempt.

 

They're over in general chat defending man-made global warming.

[bosco]

They're over in general chat defending man-made global warming.

 

^ now thats funny. tax cuts explained is so true. bosco

[PhillyWilly]

well i doubt that they would stop showing up. what are they going to give all their money away to be in the lowest bracket? they will remain rich and they will not go anywhere. if you raised the highest bracket to 50% (as with many european countries) they would not go anywhere. they would be there paying 50% and complaining about it but they would pay it and still have plenty left over. when you say overseas i hope you are referring to africa because tax rates in the US are much much lower than most european nations.

 

since you seem so tax savvy, could you also explain how the 15% capital gains rate is fair and why the the estate tax should be removed? both of which mostly benefit millionaires.

[TPLGT]

Wow! A republican-slanted post...I love it! Less taxes=more money in your pocket...pretty easy, actually.

 

More on this when I need to jump in and educate those who have no clue.

[ZinFreak]

This has been floating around a long time... William F. Buckley had it in his column in the National Review six years ago.

 

http://www.snopes.com/business/taxes/howtaxes.asp

 

It does illustrate how progressive taxes work, but takes a simplistic leap of logic that the "rich guy" suddenly stops paying taxes

 

I fall into the the upper-middle class. The amount of taxes I pay is astounding. That hasn't stopped me from wanting to make more money to buy more toys. And yeah, I might be considered a Liberal by some. I don't mind paying taxes as long as I get value for my money. But I haven't seen much "value" lately. Just a huge sucking sound for a f'd up war.

 

Now that I think of it, maybe we should stop the bleeding and just cut off the funding for the war. That would save us from driving this country further into debt and reduce the future tax burden.

[fj1200]

since you seem so tax savvy, could you also explain how the 15% capital gains rate is fair and why the the estate tax should be removed? both of which mostly benefit millionaires.

 

Have you seen the unemployment rates in high tax europe lately?

 

A 15% cap gains rate is beneficial for many reasons; fair because those dollars were already taxed once (when earned), a lower rate actually brings in more revenue to the treasury than it "costs" on a dynamic basis, and it creates jobs because the wealthy invest in capital markets and business ventures.

 

I would even propose that corporate taxes be eliminated completely. The compliance costs to corporations are ridiculous, tax policy should not come into play on whether to make an investment, and the profits would be taxed at the individual level anyways. For all the pain it causes, it only brings in about IIRC 10-11% of the total revenue anyway.

 

The purpose of the tax code should be to collect revenue to run the government, it should not be used for social engineering.

[PhilT]

Have you seen the unemployment rates in high tax europe lately?

 

 

I don't know why you think tax rates are high in Europe.

 

In the UK, the basic tax rate is 22%, unless you earn over $65,000, then it jumps to 40%.

 

There is free health care, free education, subsidised university education, I could go on and on.

 

True there are draw backs too, but we are just talking about taxes here.

 

Unemployment rate is 5.5%, whereas in the US it is 4.5%

 

Poverty is much less, but then so is enormous wealth.

[Effin Ponderous]

This has been floating around a long time... William F. Buckley had it in his column in the National Review six years ago.

 

http://www.snopes.com/business/taxes/howtaxes.asp

 

It does illustrate how progressive taxes work, but takes a simplistic leap of logic that the "rich guy" suddenly stops paying taxes

 

I fall into the the upper-middle class. The amount of taxes I pay is astounding. That hasn't stopped me from wanting to make more money to buy more toys. And yeah, I might be considered a Liberal by some. I don't mind paying taxes as long as I get value for my money. But I haven't seen much "value" lately. Just a huge sucking sound for a f'd up war.

 

Now that I think of it, maybe we should stop the bleeding and just cut off the funding for the war. That would save us from driving this country further into debt and reduce the future tax burden.

It's amazing how the plain truth can be summed up in so few words. Thank You Zin!

[fj1200]

I don't know why you think tax rates are high in Europe.

 

In the UK, the basic tax rate is 22%, unless you earn over $65,000, then it jumps to 40%.

 

There is free health care, free education, subsidised university education, I could go on and on.

 

True there are draw backs too, but we are just talking about taxes here.

 

Unemployment rate is 5.5%, whereas in the US it is 4.5%

 

Poverty is much less, but then so is enormous wealth.

 

Try France and Germany for higher tax rates, regulations, and unemployment. There is also less opportunity for upward mobility in those old money economies. Did you see the recent story about younger French workers moving to the UK for economic opportunity? I could go on and on too but let's keep it on taxes.

[Need4Speed]

The rich guy does leave the table (sort of) in that with so much pressure to pay taxes the rich figure out ways to pay less.

 

The rich guy might still be at the table but he is paying less taxes because of his (or her) financial intelligence (or illegal activity).

[ZinFreak]

The rich guy does leave the table (sort of) in that with so much pressure to pay taxes the rich figure out ways to pay less.

 

The rich guy might still be at the table but he is paying less taxes because of his (or her) financial intelligence (or illegal activity).

 

Yeah, they elect Republicans to cut taxes on the wealthy when we can least afford to do so. Like in a time of war.

[Need4Speed]

Yeah, they elect Republicans to cut taxes on the wealthy when we can least afford to do so. Like in a time of war.

 

Like I said... They figure out a way.

[Guest JessterCPA]

Hahahahahah!! How did I miss this for so long?

 

If only it was this simple to explain......

 

Jesse

[ZinFreak]

Like I said... They figure out a way.

 

Ok... So that is an argument for ?

[Guest JessterCPA]

[bosco]

Readers Digest April 07 pg. 33 "Tax-Cheating Tycoons" Walter C. Anderson paid $495.00 in taxes reported $67,939 made $126 million by transferring holdings to off-shore shell companies in Panama and the Virgin Islands. where are all the politicians when crap like this goes down? btw the Justice Dept thinks he also make $450 million between 1995 & 1999. bosco

[Guest JessterCPA]

Readers Digest April 07 pg. 33 "Tax-Cheating Tycoons" Walter C. Anderson paid $495.00 in taxes reported $67,939 made $126 million by transferring holdings to off-shore shell companies in Panama and the Virgin Islands. where are all the politicians when crap like this goes down? btw the Justice Dept thinks he also make $450 million between 1995 & 1999. bosco

 

This is a perfect example of abuse. Where are the policians you ask? Oh, you must mean the ones that allowed tax code like this to be in there in the first place?

 

Every tax relief bill & package that comes across my desk is insane with the number of caveats, phaseouts, loopholes, and grandfathers that it's mind boggling. The code doesnt write itself. Our elected officials put it there, and most of them arent all that smart, so someone told them it would be in their best interest to include that verbeage.

 

Jesse

[Need4Speed]

Ok... So that is an argument for ?

 

Just a statement... Not an argument.

 

I have long ago determined that time is much better spent making changes to things I can control versus trying to force others to change.

[fj1200]

Readers Digest April 07 pg. 33 "Tax-Cheating Tycoons" Walter C. Anderson paid $495.00 in taxes reported $67,939 made $126 million by transferring holdings to off-shore shell companies in Panama and the Virgin Islands. where are all the politicians when crap like this goes down? btw the Justice Dept thinks he also make $450 million between 1995 & 1999. bosco

 

It's one thing to complain about tax cheats like this guy and another to complain about the ridiculous tax policy we've been saddled with, a tax policy that encourages this sort of behavior. I saw the article but can't remember if he's in jail or not.

 

Flat Tax or Fair Tax, either one and we'll be better off with a policy that encourages growth of the economy.

[ZinFreak]

 

Flat Tax or Fair Tax, either one and we'll be better off with a policy that encourages growth of the economy.

 

Splain to me why a "flat tax" or a "fair tax" would "encourage growth in the economy."

 

The "fair tax" is a tax on consumption. Taxing consumption, um, wouldn't that discourage consumption? To quote Lewis Black, "I'm confused".

 

I really hope you will pull out a better explanation than pointing to Eastern Europe as a shining beacon of where the flat tax has caused economic growth. I have no desire to emulate Latvia and Estonia.

 

With a huge segment of our population heading for retirement (boomers), what do you think would happen under a flat-tax? Perhaps a "fair tax" would work better with the aging population, especially if medical services and products were value taxed. I'm sure they'd get a bit grumpy since their income has been taxed all their life and now we'll slap at 23% tax on their viagra and cancer treatments.

 

Enlighten me, I'm an engineer, not an economist. I have more questions than answers. I'm flummoxed by our current tax code (i.e. looming AMT crisis), the national debt load, and political gridlock which seems to have handcuffed us into making any meaningful change.

 

 

-- (Not so) Fun facts

 

As of 23 March 2007 -- National Debt $8.8 Trillion dollars (~$30,000 for each person in the US)

 

In 2006 -- $406 Billion was spent on interest to service the national debt. Money that could be better spent instead of floating debt.