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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 ball. "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 men would 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 a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.
And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).
Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.
"I only got a dollar out of the $20 saving," 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 benefit than me!"
"That's true!" shouted the seventh man. "Why should he get $10 back, when I got only $2? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax 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 their 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 government ministers, is how our tax system works. The people who already pay the highest taxes will naturally 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
Contrary to Internet folklore, Dr. Kamerschen is NOT the author of "Tax Cuts: A Simple Lesson in Economics" or “Bar Stool Economics” or anything similar to that. Additionally, he does NOT know who wrote it and he has no opinion on its merits.
Second of all, that terrible analogy is nothing like how our tax system works, and if you think simple parables are good ways to think about the American economy, you're part of the problem. But then, you're erroneously copy-pasting something you got in a fwd:fwd:fwd:fwd, so what do I expect?
Second of all, that terrible analogy is nothing like how our tax system works, and if you think simple parables are good ways to think about the American economy, you're part of the problem. But then, you're erroneously copy-pasting something you got in a fwd:fwd:fwd:fwd, so what do I expect?
It also perpetuates this right wing lie that 40% of Americans "pay no taxes" when in fact they pay payroll taxes which are 45% of Federal revenues.
These chain emails are how low IQ white voters are duped into voting against their own self interest because they don't have the good critical thinking skills to know any better.
Second of all, that terrible analogy is nothing like how our tax system works, and if you think simple parables are good ways to think about the American economy, you're part of the problem. But then, you're erroneously copy-pasting something you got in a fwd:fwd:fwd:fwd, so what do I expect?
So instead of discussing the MERITS of the content of the post, you decide to link Dr. Kamerschen's home address and phone number?
It also perpetuates this right wing lie that 40% of Americans "pay no taxes" when in fact they pay payroll taxes which are 45% of Federal revenues.
Nope, the payroll taxes are like paying for pretzels and peanuts (Social Security and Medicare). The beer (federal income tax) still isn't paid for by 40+% of Americans.
Doesn't matter if it is an email chain letter or old, it still is a good analogy. You just don't like it or agree with it.
And, you do need to worry about the 10th guy deciding he is no longer going to drink the beer. Or the 9th guy deciding he'd rather work less and be the 8th guy.
Nope, the payroll taxes are like paying for pretzels and peanuts (Social Security and Medicare). The beer (federal income tax) still isn't paid for by 40+% of Americans.
Doesn't matter if it is an email chain letter or old, it still is a good analogy. You just don't like it or agree with it.
And, you do need to worry about the 10th guy deciding he is no longer going to drink the beer. Or the 9th guy deciding he'd rather work less and be the 8th guy.
The argument that if you tax the highest tax bracket (or create new tax brackets), the wealthy will either flee the country or suddenly decide to earn less money is patently absurd, and the analogy is a gross oversimplification of our political structure and the motivation behind tax cuts that is only attractive to the most ignorant of the population. This is for children.
In reality the 10th guy pays a substantially lower rate then the 9th guy because the 9th guy is paying payroll and ordinary income rates and the 10th guy is paying LTCG and dividend rates.
Nope, the payroll taxes are like paying for pretzels and peanuts (Social Security and Medicare). The beer (federal income tax) still isn't paid for by 40+% of Americans.
Doesn't matter if it is an email chain letter or old, it still is a good analogy. You just don't like it or agree with it.
And, you do need to worry about the 10th guy deciding he is no longer going to drink the beer. Or the 9th guy deciding he'd rather work less and be the 8th guy.
Actually when you include the employer contribution and stay under the cap assuming normal rates apply payroll taxes are about 15.3% and LTCG and dividend taxes are 15% under the Bush rules.
Thus why if Mitt actually took his full deductions for 2011 he would have an effective tax rate of 10.55% and an effective payroll tax rate of .2%
So instead of discussing the MERITS of the content of the post, you decide to link Dr. Kamerschen's home address and phone number?
Gotta love a Lib!
You were the one trying to use Dr. Kamerschen's name to lend credibility to that little screed, weren't you? (Well, not you, of course. We all know you didn't come up with anything in it.) Why was that necessary, if the MERITS were so obvious?
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