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post #1 of 11 Old Mar 2nd, 2008, 12:16 am Thread Starter
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Our tax system explained

Bar Stool Economics or the lowest common denominator....

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. "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.
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. 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 he fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I got." "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!

That, ladies and gentlemen, 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.

"Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety." (Some really OLD friggin' White dude who couldn't have possibly known what he was talking about!) WARNING: Official HATE speech!
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post #2 of 11 Old Mar 2nd, 2008, 5:16 am
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Re: Our tax system explained

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Originally Posted by jayjacobson
That, ladies and gentlemen, 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.
Aah, if only the Bush tax cuts had actually been applied as equitably as the bar owner's discount. Let's try telling the story using real tax receipts from before and after the 2001 cuts:

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 two men with the lowest income would pay 55-cents each. The third and fourth would pay $2.40 each. The fifth and sixth would pay $4.80 each. The seventh and eighth would pay $8.75. The ninth would pay $14.80. The man with the highest income would pay $52.20. 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. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by 5%." Drinks for the ten now cost just $95.

The group still wanted to pay their bill the way we pay our taxes. How could they divide the $5 windfall so that everyone would get his fair share?

After watching the men discuss the problem for awhile, 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.

The first two men now pay 48-cents each. The third and fourth now pay $2.33 each. The fifth and sixth would pay $4.80 each. The seventh and eighth would pay $8.74. The ninth would pay $14.82. The man with the highest income would pay $47.50.


The results of the 2001 cuts was a U-shaped curve, where those at the two ends of the income scale saw a reduction in the amount of the federal budget they paid for. Those of us in the middle (roughly $16k to $300k in income) ended up carrying a larger share of the burden.

Based on the popularity of this story, there must be a lot of people who believe the wealthy should pay a lower share of taxes. That's fine with me; I hope one day to be counted among the rich. However, I wish they would find a better way to make their point then parroting a story that is laughably inconsistent with itself and very much at odds with reality.

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post #3 of 11 Old Mar 2nd, 2008, 7:15 pm Thread Starter
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Our tax system explained

Quote:
Originally Posted by LTPenguin
....The results of the 2001 cuts was a U-shaped curve, where those at the two ends of the income scale saw a reduction in the amount of the federal budget they paid for. Those of us in the middle (roughly $16k to $300k in income) ended up carrying a larger share of the burden.....
Couldn't agree more! That's why we need MASSIVE tax increases!

"Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety." (Some really OLD friggin' White dude who couldn't have possibly known what he was talking about!) WARNING: Official HATE speech!
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post #4 of 11 Old Mar 2nd, 2008, 8:13 pm
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Re: Our tax system explained

In 2007, IRS data indicate that the wealthiest 5% of taxpayers (ranked by AGI, counting only returns with positive AGI) paid roughly 60% of all income taxes; the bottom 50% of taxpayers account for just 3% of income taxes paid. "Wikipedia"

But then we are giving, what is it $700?, back to some people and families that aren't even paying taxes. I just find this crazy when I have to pay 18% of my income after putting the maximum amount in an IRA for a single guy. And then they wonder why the younger generation has a hard time making any money.

Sorry for blowing steam. My taxes are due Monday and just wrote the check.

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post #5 of 11 Old Mar 3rd, 2008, 3:39 pm
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Re: Our tax system explained

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Originally Posted by jayjacobson
Couldn't agree more! That's why we need MASSIVE tax increases!
Oh yah!!!! That will fix the problem.

I remember when Jimmy Carter did that - you are dreaming or illusional if you think that will fix the problem! How about if the government quits spending money they don't have for starters????


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post #6 of 11 Old Mar 3rd, 2008, 9:49 pm Thread Starter
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Re: Our tax system explained

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Originally Posted by Chick
Oh yah!!!! That will fix the problem.

I remember when Jimmy Carter did that - you are dreaming or illusional if you think that will fix the problem! How about if the government quits spending money they don't have for starters????
So 18% interest rates were bad?!

"Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety." (Some really OLD friggin' White dude who couldn't have possibly known what he was talking about!) WARNING: Official HATE speech!
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post #7 of 11 Old Mar 4th, 2008, 2:05 am
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Re: Our tax system explained

Quote:
Originally Posted by jayjacobson
Couldn't agree more! That's why we need MASSIVE tax increases!
Warning! Warning!

Oh, what the hell.

Let's see, W took over with a massive budget surplus. He'll be leaving office with an almost unintelligible deficit. Maybe we need to stop funneling all that tax money into unethical wars and wealthy corporations such as Halliburton and instead use it to bring Democracy back to our country.

As I walked out of a store today, a guy was trying to get petition signatures to get a measure on the ballot to reduce the price of gas. As if we could just vote the price down. I just smiled, and said "good luck with that."

America (arguably) voted that idiot in, twice. Now we're all paying for it, literally, and will be for years to come.

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All lower 48 states plus Alaska on the K13GT in two weeks . . .

Some people see the gas tank as half empty. Some see it as half full. All I care is that I know where the next tankful is coming from...
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Last edited by meese; Mar 4th, 2008 at 2:10 am.
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post #8 of 11 Old Mar 4th, 2008, 6:25 am Thread Starter
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Quote:
Originally Posted by meese
....Maybe we need to stop funneling all that tax money into unethical wars and wealthy corporations such as Halliburton and instead use it to bring Democracy back to our country....America (arguably) voted that idiot in, twice. Now we're all paying for it, literally, and will be for years to come.
Do you think Billary will be able to restore democracy in 4 years, or will it take 8 years? Will this interfere with free, unlimited health care?

You can feed the POSERS all you want, BTW.

"Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety." (Some really OLD friggin' White dude who couldn't have possibly known what he was talking about!) WARNING: Official HATE speech!
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post #9 of 11 Old Mar 4th, 2008, 12:09 pm
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Re: Our tax system explained

C'mon, Jay, you know it's not about who can fix our problems. It's about voting in the candidate that can do the least amount of damage. So far, we're failing miserably at that.

Ken
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All lower 48 states plus Alaska on the K13GT in two weeks . . .

Some people see the gas tank as half empty. Some see it as half full. All I care is that I know where the next tankful is coming from...
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post #10 of 11 Old Mar 4th, 2008, 1:31 pm Thread Starter
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Re: Our tax system explained

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Originally Posted by meese
....It's about voting in the candidate that can do the least amount of damage. So far, we're failing miserably at that.
LOL! Ken, we must two VERY cynical bastards?! You summed it up perfectly it just a few words!

Guess my free, unlimited health care is off the table, huh?

"Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety." (Some really OLD friggin' White dude who couldn't have possibly known what he was talking about!) WARNING: Official HATE speech!
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post #11 of 11 Old Mar 4th, 2008, 1:36 pm
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Originally Posted by jayjacobson
Guess my free, unlimited health care is off the table, huh?
Yup! That and cheap gas!

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