One more for the road - Enjoy!

[on-ramp]

- The "Myth" That The Rich Don't Pay Fair Share of Taxes
I was having lunch with a friend last week and the conversation turned to the government's recent round of tax cuts.

"I'm opposed to those tax cuts," the retired college professor declared, "because they benefit the rich. The rich get much more money back than ordinary taxpayers like you and me, and that's not fair."

"But the rich pay more in the first place," I argued, "so it stands to reason that they'd get more money back."

I could tell that my friend was unimpressed by this meager argument.
Even college professors are prisoners of the myth that the "rich" somehow get a free ride. Nothing could be further from the truth. Let's put tax cuts in terms everyone can understand.

Suppose that every day 10 men go to dinner. The bill for all ten comes to $100. If it was paid the way we pay our taxes, the first four men would pay nothing; the fifth would pay $1; the sixth would pay $3; the seventh $7; the eighth $12; the ninth $18. The tenth man (the richest) would pay $59.

The 10 men ate dinner in the restaurant everyday and seemed quite happy with the arrangement until 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." Now dinner for the 10 only costs $80.

The first four are unaffected. They still eat for free.

Can you figure out how to divvy up the $20 savings among the remaining six so that everyone gets his fair share?

The men realize that $20 divided by 6 is $3.33, but if they subtract that from everybody's share, then the fifth man and the sixth man would end up being paid to eat their meal.

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 paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of $59.

Outside the restaurant, the men began to compare their savings. "I only got a dollar out the $20," declared the sixth man pointing to the tenth, " and he got $7!"

"Yeah, that's right," exclaimed the fifth man. I only saved a dollar, too. It's unfair that he got seven times more than me!"

"That's true," shouted the seventh man. "Why should he get $7 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. The system exploits the poor."

The nine men surrounded the tenth and beat him up. The next night he 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 were $52 short!

And that, boys and girls and college instructors, is how the 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 Switzerland and the Caribbean.

[Schrup]

I managed to make the 25% bracket with some of my earnings last year, OUCH. That won't happen again, I doubled my defered comp to keep me out of that nasty bracket. I think that people with money have to be really creative to keep from getting raped.

[jrdavid68]

Speaking of creativity, my wife starting 2004 as a consultant and as a sole proprietorship. So now we need to keep track of all the things that we can use as a tax break. It's easy enough to keep track of miles etc., but I was wondering if any of you have any tips on how to keep track of things and what to keep track of. Any good software out there that helps?

Thanks,

[Burnin' oil]

On-Ramp:

Amen to that brother.

[CamB]

Yeah, but isn't the issue that the reason the tax cuts can be made is that those 4 guys eating for free (in either case) now get a crappier meal.

In fact, on reflection everyone gets a crappier meal (a $100 meal can't become an $80 meal without a loss of quality or quantity) - the rich guys just have more money to go to a really really nice restaurant afterwards.

Further, the 4 guys who eat for free are now hungry.

[concentric]

Originally posted by jrdavid68
Speaking of creativity, my wife starting 2004 as a consultant and as a sole proprietorship. So now we need to keep track of all the things that we can use as a tax break. It's easy enough to keep track of miles etc., but I was wondering if any of you have any tips on how to keep track of things and what to keep track of. Any good software out there that helps?

Thanks,

Make an appointment with an accountant and ask. There is a real art to structuring your business and personal choices to allow them to be expensible, at least in certain businesses. Basically just keep track of everything and let your friendly tax professional sort it out.

JCM

[CamB]

I can't be bothered with the metaphor! Too complicated.

IMO, if a govt can cut high income earners' taxes without undermining an acceptable range of services (or running a huge deficit) then they should go for it.

However, if the guys at the top get a tax cut, it is usually the guys at the bottom who suffer. Whether they still get enough from the Govt is a personal viewpoint (eg Conservative vs Liberal view).