Tax The Rich!

[pwd72s]

Democratic Tax the Rich System

Democrats exclaim; "It's just a tax cut for the rich!", and it is just accepted to be fact. But what does that really mean? Just in case you are not completely clear on this issue, we hope the following will help. "Tax Cuts - A Simple Lesson In Economics" by David R. Kamerschen, Ph.D., Distinguished Professor of Economics; 536 Brooks Hall, University of Georgia. This is how the cookie crumbles. Please read it carefully.

Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men 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 men (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 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."

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 men were unaffected. They would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his 'fair share'?

The six men 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 $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 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 at the table anymore. There are lots of good restaurants in Europe and the Caribbean.

Thanks David R. Kamerschen, Ph.D., Distinguished Professor of Economics, U
of Georgia

[island911]

Yep, and while the "customers" are busy bickering, the "restaurant owner" laughs all the way to the bank.. . as the "customers," who were promised steak, got nothing more than boiled homeless kittens.

[350HP930]

Didn't you already post this in another thread?

[cegerer]

The sad part is it is so true. Wasn't it a few years back where the government was giving tax 'refunds' to the poor who hadn't even paid any taxes, basically using the 'logic' of this story ....

[fintstone]

Didn't you already post this in another thread?

No, a liberal did who somehow thought it helped his argument...LOL

[tabs]

Anyway...I sure hope GW puts my $40 contribution to the tax system to good use....BTW...that $40 represents my TOTAL contribution to the Federal govt for 2003.

[Aurel]

Hey Tabs, I am sure you managed to pay so little taxes by deducting all your casino losses...am I right ?

Aurel

[Schrup]

Originally posted by island911
Yep, and while the "customers" are busy bickering, the "restaurant owner" laughs all the way to the bank.. . as the "customers," who were promised steak, got nothing more than boiled homeless kittens.

That's gross man. I can tell the difference between beef & cat. Beef & dog slathered in teriyaki sauce is a different story though.

[beepbeep]

Originally posted by pwd72s
The next night the tenth man didn't show up for dinner

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.

Thanks David R. Kamerschen, Ph.D., Distinguished Professor of Economics, U
of Georgia

Err...do you really believe European "restaurangs" favour rich more than American ones?

[Aurel]

In this example, the problem is not that there are not enough people to pay for the meal. It is that the restaurant owner (aka GW Bush) has reduced the cost of the meal, while at the same time increased the cost of running his business (aka the domestic debt). In business terms, his restaurant will be bankrupt very soon...

Aurel

[will944]

Man...I need to send this to my Uncle....maybe he will understand the very simple way this was broken down!! haha

I appreciate the post....made me laugh....people can be ridiculous eh!

[BlueSkyJaunte]

Originally posted by Aurel
It is that the restaurant owner (aka GW Bush) has reduced the cost of the meal, while at the same time increased the cost of running his business (aka the domestic debt).

Hey that's what credit cards and 0% APR balance transfers are for.

[Zeke]

Originally posted by beepbeep
Err...do you really believe European "restaurangs" favour rich more than American ones?

Did you not get the metaphor?

[beepbeep]

Originally posted by Zeke
Did you not get the metaphor?

I believe so. But i fail to see how rich americans are going to evade high taxes by just moving to Europe. Well except Monaco that is.

Most if Euro countries have bigger taxes than US of A.

My own (Sweden) has progressive tax system that will burden ordinary middle-class with approx. 34%, going upwards to around 50% effective tax for real high rollers.

I won't discuss how tax money is distributed and used in US as I don't know enough about it, but more tax money means also that goverment can spend more, and it's not always a bad thing(even if Kaynes doctrine is antiquated nowadays).

As far as I understand, story's morale is "do not whine beacuse tax reductions help rich the most beacuse they pay most of the bill". But you do have budget deficit don't you? (Seems so: http://www.gao.gov/cghome/fiscalimbalance/imbalance4604/img10.html ) So what's the point in lowering taxes when your goverment already is low on cash?

I mean, you can lover your taxes to make people happy in the short turn but then it means that goverment either has to borrow money abroad to cover it's expenses (which lowers currency's value towards other currencys) or to cut it's expenses which means that ordinary citizen will have to pay himself for certain services, negating the gains from tax-reduction.

AFAIK, most of rep/democrat political discussions on forum (except for incoherent ramblings of tabs and like) is about where on this graph you want to be: on low tax/everyone for himself or raised tax/more goverment control etc.

[Aurel]

Goran, you`re right. This is the point I was making too. And the answer of Cheney is `deficits don`t matter`. The idea is that by lowering taxes, the output of the economy increases, and the government can borrow more money...but nobody has ever tried this theory with such a high deficit and a jobless recovery. Further nobody has ever tried before to invade a foreign country for democratic nation building at the same time. And you can see how the two are related. The problem right now is that the White house is run by ideologues, who got a chance to experiment their crazy concepts with an intellectually weak president. It reminds me of the Tchernobyl disaster: they were experimenting with the reactor, too...and you can see how most of the competent professionals are leaving before the explosion occurs. Take my word for it: this administration has created an extremly dangerous and unstable situation, a crazy gamble from which it cannot backout now. I see it a much bigger threat than terrorism itself. Money is stretched, troops are stretched. Unlike terrorism, draft and inflation will affect everyone. And at some point, paying too much taxes could become a privilege...

Aurel

[Bleyseng]

Aurel, well said!

[island911]

Aurel, you're WAY OFF on a tangent. (intentionally, I imagine)

Originally posted by beepbeep
. . .
So what's the point in lowering taxes when your goverment already is low on cash?

I mean, you can lover your taxes to make people happy in the short turn but then it means that goverment either has to borrow money abroad to cover it's expenses . . .

You seem to be confusing "lowering taxes" with "lowering taxe rate." (a VERY important distinction)

What I remember from econ 101, is this thing called "velocity of money." (def'n)

Essentially, gov'ts take (recieve) their cut (money) only at the point of transaction. (fewer transactions = few $'s)

On a given purchase; When the overhead of tax is too high, the number of (reported) transactions drops. Thus, it is in the gov'ts interest to find the "sweet-spot" between tax-rate and taxable spending.

Goran, take for example how Sweden controls alcohol sales by using punitively high taxes. It slows the sales (and taxes).
. . . or, in more extreme cases, it sends the sales underground; as it has for your Nordic neighbors to the west. (almost eliminating those taxes .. .even though the rate is high)

[fintstone]

Originally posted by beepbeep

As far as I understand, story's morale is "do not whine beacuse tax reductions help rich the most beacuse they pay most of the bill". But you do have budget deficit don't you? (Seems so: http://www.gao.gov/cghome/fiscalimbalance/imbalance4604/img10.html ) So what's the point in lowering taxes when your goverment already is low on cash?

I mean, you can lover your taxes to make people happy in the short turn but then it means that goverment either has to borrow money abroad to cover it's expenses (which lowers currency's value towards other currencys) or to cut it's expenses which means that ordinary citizen will have to pay himself for certain services, negating the gains from tax-reduction.

Good post! No, the moral of the story is that if you tax the rich too much, they will eventually choose to use their riches in such a way that you cannot tax them. The "rich" already pay an overwhelming amount of taxes. If you are too greedy and keep voting yourself more and more of the money they earn, eventually they will find that it is not worth the effort to earn more or will take their jobs and money elsewhere and you will have even less than before.

The reason for lowering taxes is that it has historically increased tax revenues significantly. If you assume a net sum game as your post...ie there are a finite, set number of tax dollars out there and a set amount of decrease in tax results in the same amount of increase in defict, you are correct. But, that is not how it seems to work. Every time this country has lowered taxes, this has resulted...under Kennedy, under Reagan, and now under Bush, in higher tax revenues due to increased personal and business spending and productivity. Under a smaller tax burden, our extremely capitalistic nature seems to take over. More tax paying jobs are created and as thus more taxes are collected. Unfortunately, as you imply, each time we take in more money, the political will is not there and we spend even more. Taxes are like a fine for speeding. If speeding 25 mph over the limit will get you a $25 fine..most might well be willing to speed and pay the price. If it were $100, fewer would take the risk. If it were $100,000 even fewer, $1,000,000 maybe no one..etc....If one depended on revenue from speed control, they would be wise to keep the fine a bit lower and hope more people would speed. If 1 million would speed with a $25 fine...your revenues are $25, 000,000..if only 5 would speed at a million dollar fine...then you have increased the fine greatly, but reduced the total revenue significantly. Since most of the "rich" in the US are that way because they earn it nad take risks..penalizing earnings too much results in less folks willing to do what it takes to achieve those earnings.

[beepbeep]

Originally posted by island911
Aurel, you're WAY OFF on a tangent. (intentionally, I imagine)

You seem to be confusing "lowering taxes" with "lowering taxe rate." (a VERY important distinction)

What I remember from econ 101, is this thing called "velocity of money." (def'n)

Essentially, gov'ts take (recieve) their cut (money) only at the point of transaction. (fewer transactions = few $'s)

On a given purchase; When the overhead of tax is too high, the number of (reported) transactions drops. Thus, it is in the gov'ts interest to find the "sweet-spot" between tax-rate and taxable spending.

Goran, take for example how Sweden controls alcohol sales by using punitively high taxes. It slows the sales (and taxes).
. . . or, in more extreme cases, it sends the sales underground; as it has for your Nordic neighbors to the west. (almost eliminating those taxes .. .even though the rate is high)

Correct. It's a "bathtub curve". Tax the people too much and amount of transactions will decrease. There is a certain point where increasing tax rate will give negative effect.

That being said, US tax rates are pretty low compared to other countries (and thay still doesn't expirience rampant black-market trade) so I really doubt that point of diminishing returns would be reached in US even if you substantially raised your tax rates.

Of course, this is open to debate. "Point of diominishing returns" is tied to populations expectations and preferences.

Using Swedish alcohol-monopoly as example is quite bad choice though, as it's main reason is not to bring in money to the state (it's makes a very marginal portion of GDP) but to try to bring back some of money to cover for damage that alcohol is causing for Swedish state.

You see, when you pay so much for wellfare, you don't want to waste a big chunk of system for caring for unemployed chronical alcoholists but save it tfor productive workforce that pays taxes.

That's why we have so high taxes on alcohol. Now we are in EU so there is a pressure to dismantle the system. Personally, I as a moderate consumer of alcohol find it pretty bad. Systembolaget, as it's called, has a vast supply of articles...products might be expensive but add-on percentage is quite similar which means that I can buy Fetzer for just 50% more than California Red.

Result is that moderate consumers are persuaded to buy quality-products and those in high-consumtion risk zone are penalized by high prices, bringing back some money that can be used in treating them and easing the impacts of alcohol-abuse.

[pwd72s]

Goran, Any "shine" available in Sweden? Sounds like a good biz opportunity!