Tax cut explanation

[gr8fl4porsche]

Anyone else seen this?
Offered without comment, but I'm sure plenty of you will have some.


"Understanding Tax Cuts"
David R. Kamerschen, Ph.D

Professor of Economics
University of Georgia

Sometimes politicians, journalists and the liberal left 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, I hope the
following will help. Please read it carefully.

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

Suppose that every day, ten men go out for dinner 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 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." Dinner 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 eat 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 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 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 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 anymore.

In fact, they might start eating overseas where
the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D
Professor of Economics
University of Georgia33333333333

[cgarr]

You got it,

To test this I just went down town and asked several, 15 or 20 poor people if I could work for them and make some money? will you hire me? They all looked very strangely at me and all said "we don't have any work for you" "I don't have any money to pay you" So my position stands, I have never yet had a poor person offer me a job!

[Racerbvd]

Originally Posted by cgarr

You got it,

To test this I just went down town and asked several, 15 or 20 poor people if I could work for them and make some money? will you hire me? They all looked very strangely at me and all said "we don't have any work for you" "I don't have any money to pay you" So my position stands, I have never yet had a poor person offer me a job!

Yep, and libs love to say that the "Rich" can do without that new Porsche, boat & vacation but are too stupid to realize that by not buying those things affects more people in a negative way than it helps

[cgarr]

That reminds me, Do you remember the Luxury tax? Were going to stick it to those rich people who buy all those big boats and other big ticket items, were going to show them rich ba$tards. Then the Michigan boat business started to lay off workers and close factory's! I guess they stuck it to the man didn't they? try a bunch of unemployed workers... Another Liberal experiment that tried to bite the hand that feeds you..

[Dottore]

You guys are right. Personally I think the more you earn, the lower your rate of tax should be in percentage terms. Think of the incentive this would provide to poor people to get better jobs and earn more? And what could be fairer than rewarding those who are doing the really heavy lifting with a lower tax rate?

I think that's called tax equalization.

[cgarr]

Originally Posted by Dottore

And what could be fairer than rewarding those who are doing the really heavy lifting with a lower tax rate?

They should apply this to homes too. When you sink a lot of money in your home to update it making it a much nicer place, better looking, great for the neighborhood you should not be TAXED higher for having done so. They should tax the ba$tards who live in ***** holes that don't give a rats a$$ what their place looks like, might just be an incentive to clean it up, don't you think?

You may have noticed I HATE THESE TAXING $&^ers!!!!

[RoninLB]

Obama's Faulty Tax Argument
By ANDREW G. BIGGS
WSJ; May 9, 2008; Page A17

As the presidential campaign heats up, a key issue is whether to extend the 2001 and 2003 income tax cuts, which expire in 2011. John McCain wants to make the tax cuts permanent. Barack Obama and Hillary Clinton want to let the rates rise.

Opponents of the tax cuts point to spending programs that could be financed by the extra revenues. Chief among these is Social Security. Sen. Obama's Web site, for example, argues that "extending the Bush tax cuts will cost three times as much as what is needed to fix Social Security's solvency over the next 75 years."

Such statements imply that if we return to the seemingly modest tax rates of the 1990s, we could fund the $4.3 trillion Social Security deficit, and so much more. As Mr. Obama recently told Fox News, "I would roll back the Bush tax cuts on the wealthiest Americans back to the level they were under Bill Clinton, when I don't remember rich people feeling oppressed."

This argument seems compelling, but it is misguided. In reality, repealing the tax cuts would raise taxes far above Clinton-era levels. Due to quirks in the tax code, average taxes would be almost 25% higher than during the 1990s.

Mr. Obama's claim that the lost revenue from the income-tax cuts exceeds the Social Security shortfall derives from an analysis by the Center on Budget and Policy Priorities. The Center's conclusions have been widely cited, but rely on dubious assumptions.

The basic methodology is simple: Compare the income-tax revenues if the tax cuts expire to revenues if the tax cuts are extended. The Center measures the difference in revenue 10 years from now – to match the government's 10-year budget measurement period – then extends the difference over 75 years to make it comparable to the 75-year Social Security shortfall.

To account for the effects of inflation and economic growth, analysts compare tax revenues to the size of the economy. The Congressional Budget Office projects that if the tax cuts expire, income-tax receipts in 2018 will be 1.5% higher relative to gross domestic product than if the cuts are made permanent. By comparison, Social Security's 75-year shortfall is just 0.6% of GDP.

So Social Security is a costly problem, but the tax cuts cost much more. Open and shut case, right?

Not exactly. Tax revenues would skyrocket if the tax cuts expire, due to "bracket creep." Average incomes are higher today than in the 1990s, but income-tax brackets aren't adjusted for the growth of earnings. As a result, Americans will shift into higher tax brackets and pay a greater share of their incomes in taxes.

Going back to the tax rates of the 1990s doesn't mean that households will pay 1990s taxes. Because the tax brackets haven't risen along with incomes, average taxes would be significantly higher, and grow each year.

If the tax cuts expire, income-tax revenues by 2018 will rise to 10.8% of the total economy from 8.7% today – an increase of 24%. Compared to the average over the last 50 years, allowing the rates to rise would increase tax revenues by 32%.

Believe it or not, income taxes will rise even if the tax cuts remain in place, because the revenue-increasing effects of bracket creep more than offset the lower rates. With the lower rates, total income-tax revenues will increase to 9.3% of GDP by 2018. This level is 7% higher than today, and 13% above the 1957-2007 average. Thus even with the tax cuts, revenues will increase by more than enough to fix Social Security.

So even if the tax cuts are made permanent, future Americans will pay a greater share of their incomes to the government than in the past. But for some in Washington, that's not enough.

Not surprisingly, neither party highlights these rising tax receipts. They undercut liberal arguments that the government is starved of revenue. And they render conservative claims for the tax cuts unimpressive. ("Vote GOP: A smaller tax increase than the other guys!")

The next president will face difficult choices regarding how much to collect in taxes, and how much to spend on entitlements like Social Security. Future citizens may decide that paying higher taxes is worthwhile. But in any event, the misleading tax cuts vs. Social Security argument should not guide policy makers on this issue.

Mr. Biggs, a resident scholar at the American Enterprise Institute in Washington, D.C., is the former principal deputy commissioner at the Social Security Administration.

[sammyg2]

Just like Hitlary said, "we are going to take something away from you for the common good".

The democrats know better than we do what is good for us and what isn't, so they will take everything away from us and give it back they way they see fit, and we will all be better off because of it. Because they are smarter than we are.

[Gogar]

Here's some interesting stuff; mostly about "who" wrote the piece.

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

[kstar]

Here's a guy who claims to have refuted the piece - wade in at your own risk:

http://www.viralgrapevine.com/how-tax-cuts-work-by-david-r-kamerschen-refuted-the-real-way-tax-work-removing-the-internet-garbage/

[70SWT]

There is only one approach that:

avoids any reasonable allegation of "I got ripped off by the tax man compared to someone else";
simplifies the tax code;
reduces the need for audits;
thus gets rid of a large percentage of the IRS bureaucracy;
and takes away the ability of politicians to use income tax as a tool for political gain:

If you make a buck, you pay a given percentage as tax. On every buck, everyone makes.

If it's 10%:

you make $1, you pay 10 cents. You make $100, you pay $10. You make $1 million, you pay $100,000. Period.

Neither poverty or wealth is an excuse to pay a different proportion of tax as your fellow man.

[m21sniper]

I favor the 'work in a cash business' approach.

[Gogar]

Originally Posted by kstarnes

Here's a guy who claims to have refuted the piece - wade in at your own risk:

http://www.viralgrapevine.com/how-tax-cuts-work-by-david-r-kamerschen-refuted-the-real-way-tax-work-removing-the-internet-garbage/

It's so disappointing that he can't just appreciate the analogy.

[kstar]

Originally Posted by RSflared72E

There is only one approach that:

avoids any reasonable allegation of "I got ripped off by the tax man compared to someone else";
simplifies the tax code;
reduces the need for audits;
thus gets rid of a large percentage of the IRS bureaucracy;
and takes away the ability of politicians to use income tax as a tool for political gain:

If you make a buck, you pay a given percentage as tax. On every buck, everyone makes.

If it's 10%:

you make $1, you pay 10 cents. You make $100, you pay $10. You make $1 million, you pay $100,000. Period.

Neither poverty or wealth is an excuse to pay a different proportion of tax as your fellow man.

I agree.

To make it more palatable to some folks, I'd say exempt everyone from the flat tax that makes less than "X", where X is somewhere around these established "low income levels": http://www.ed.gov/about/offices/list/ope/trio/incomelevels.html

Single person, about $15.6k, Couple about $21k, etc.

I think it would be better to put the tax on the spending side, not the income side, with similar exemptions for low income folks.

The IRS and the power it gives legislators, the cost to run it and the costs to comply with the ~17,000 pages that comprise the tax code are hugely counterproductive to our capitalistic based system.

[David]

You guys kill me. Some of you complain about the idiot that runs up thousands of dollars in credit card debt and can't afford to pay it, but you don't have a problem running up the national debt.

I agree completely that money spent in the private sector does more for the economy than gov't spent money. What I don't agree with is running up the debt so there's more money in the private sector.

I also agree that there are times when raising the national debt is called for. Right now is probably one of those times. My issue with Republicans is that for most of my life time, they think every year is a year that requires deficit spending.


P.S. You all do realize that the US has one of the lowest tax rates of the 1st world countries.

I will admit that we are #2 in the world in corporate tax now. We were #6 when W took office .

[kstar]

Who said the US should run up the national debt? Some of us, including me, believe in a more efficient system not hampered by the insidious nature of the IRS, its code and the power it gives legislators. A more efficient system would improve revenues and help pay down the national debt., IMO.

Count me as one who does not believe in increased deficit spending. FWIW, I don't view lower and more effective taxation as spending!

IMO, there is more to the problem than absolute tax rates. And, we can continue to disagree on what tax policy is best to raise revenue.

Best,

[Moses]

Originally Posted by m21sniper

I favor the 'work in a cash business' approach.

Don't feel too bad about being a freeloader. I'm pretty sure I've got your share covered this year...again.

[Seahawk]

Originally Posted by kstarnes

Who said the US should run up the national debt? Some of us, including me, believe in a more efficient system not hampered by the insidious nature of the IRS, its code and the power it gives legislators. A more efficient system would improve revenues and help pay down the national debt., IMO.

Count me as one who does not believe in increased deficit spending. FWIW, I don't view lower and more effective taxation as spending!

IMO, there is more to the problem than absolute tax rates. And, we can continue to disagree on what tax policy is best to raise revenue.

Best,

Taxes have made us servants, wasn't always so: The U.S. income tax was first proposed during the War of 1812, but was defeated. In July 1861, the Congress passed a 3% tax on all net income above $600 a year (about USD 10,000 today). Income taxes were enacted at various times until 1894, but were not imposed after 1895 when an 1894 tax act was found to be unconstitutional. In response, the 16th Amendment was ratified in 1913.

We can ratify anything

[m21sniper]

Originally Posted by Moses

Don't feel too bad about being a freeloader. I'm pretty sure I've got your share covered this year...again.

Freeloader?

Everything i buy is paid cash on the barrel at time of sale. Everything.

[m21sniper]

Originally Posted by Seahawk

Taxes have made us servants, wasn't always so: The U.S. income tax was first proposed during the War of 1812, but was defeated. In July 1861, the Congress passed a 3% tax on all net income above $600 a year (about USD 10,000 today). Income taxes were enacted at various times until 1894, but were not imposed after 1895 when an 1894 tax act was found to be unconstitutional. In response, the 16th Amendment was ratified in 1913.

We can ratify anything

WIKI- "The Sixteenth Amendment (Amendment XVI) of the United States Constitution was ratified on February 3, 1913. This Amendment overruled Pollock v. Farmers' Loan & Trust Co. (1895), which greatly limited the Congress's authority to levy an income tax. This Amendment allows the Congress to levy an income tax without regard to the States or the Census."

Our forebears let us down. They should have revolted on the spot.