This is how tax cuts really work

[Nick M]

First a few qualifiers. Politically knowledable people already know. Even those that say things like "making rich pay their fair share" or " rich are getting the biggest tax cut". It is horseshit and liberals know it.

But here is a really good example with a real world situation. I found it on another forum I visit.

This is a good explanation of how income taxes really works!!

Sometimes politicians, journalists and others 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

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 often friendlier.

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

 

[CTsupra]

hahaha, good find!

 

[Shytheed Dumas]

Good post Nick. It's amazing how clear things can be in a well thought out example, and when you cut the traditional "Dems are for the poor, Reps are for the rich" stereotypes and simply look at common sense facts.

 

[SupraMario]

LOL, its still horseshit,
the poor dont pay
and the wealth dont pay,
who pays the middle man.
Its been proven time and time again, and example like this is basic math, but basic math isnt applied to lobbiest, and people who use food stamps, and get away with living with no job and being lazy.
point being, it looks good on paper, and makes since on paper, buts its not as true as you might think.
Liberial or not, republican or not, democrate or not, this is BS, nice example tho.

 

[swaq]

Very interesting. I still can't say I understand taxes too well though...

 

[MDCmotorsports]

I still think taxes need to abolished completely, and just sales tax every thing you buy. That way all the illegals who are in the country pay taxes. No one escapes them and it simplifies every thing. You can throw the bull shit tax code created by lawers out the window.

BTW, any body ever noticed that when tax cuts come up the gas prices go up? LOL

 

[Supra Blues]

LOL, its still horseshit,
the poor dont pay
and the wealth dont pay,
who pays the middle man.
Its been proven time and time again, and example like this is basic math, but basic math isnt applied to lobbiest, and people who use food stamps, and get away with living with no job and being lazy.
point being, it looks good on paper, and makes since on paper, buts its not as true as you might think.
Liberial or not, republican or not, democrate or not, this is BS, nice example tho.

Actually it is a pretty good example of how the tax system works. We have clients that made a little over 3 million dollars last year and their total tax bill for 2005 was over 1 million. That is income tax alone. Not counting sales tax and property taxes. We also have clients that made about 40,000 in 2005 and they paid between 0 and approx 10,000 in taxes.

So for the millionaire, their marginal tax rate was about 1/3. The 40,000 income earner paid anywhere from 0% to 25% depending on the circumstances.

But yes, you either hear about benefits for the poor or tax breaks for the rich and nothing is said about the rest of us in between. But tax cuts for the rich don't mean very much because they pay so damn much in taxes already.

 

[Supracentral]

LOL, its still horseshit, the poor dont pay and the wealth dont pay,who pays the middle man.

Care to take a look at what I pay in my 45% FICA tax bracket? I'm not the "middle man" you speak of. According to the US government, I'm wealthy (not really sure how that works, I'm successful, but I sure as hell don't feel wealthy...) and I pay out the ass. Yes, I have writeoffs, and have ways to defer SOME of the tax they charge me, but I still pay out more in taxes annually than a lot of people make.

I will agree that the middle guy does pay, too much in taxes, but he pays a higher price in other ways.

I'll give you an example of what REALLY happens. Tomorrow, they tell me that my tax rate is going up 20%, here's some of the things I do as a result:

I fire my landscaper.
I fire my housekeeper.
I reduce my sattelite tv and similar services to the minimums, or remove them.
I remove one of my two internet connections at the house.
I cancel my netflix account.
I stop modding my cars.
I stop eating out at resturants & fast food joints.
I reduce the features on my telephone service.
I stop paying someone to change my oil.
I stop a good portion of the investing I do.
I stop all discretionary spending.
I don't go on vacation.
I no longer spend $8 +/- at Starbucks

What does all this translate to?

Jobs

My income & spending generates a LOT of work for a lot of people. Reduce my ability to spend, and people loose jobs. Period. Do it to a milliion people like me, and tens of millions of people loose jobs.

I still think taxes need to abolished completely, and just sales tax every thing you buy. That way all the illegals who are in the country pay taxes. No one escapes them and it simplifies every thing. You can throw the bull shit tax code created by lawers out the window.

There's an easy and sane way to fix the Federal tax system and the plan is already well thought out:

http://www.fairtax.org/

If you haven't read the actual text of the Fair Tax bill and/or this book:

http://www.amazon.com/gp/product/0060875410/002-6611980-4974428?v=glance&n=283155

You need to. Learn about the proposal, how it works, why it works, and then if you disagree, post back some reasoned opinions.

A lot of the basic questions about the proposal are answered here:

http://www.fairtaxvolunteer.org/smart/faq.html

Please read those over before asking questions.

P.S. - I also own the server this forum is hosted on, pay for the bandwith & pay for the software - Think I'll be able to provide this all "free of charge" if they jack my taxes up?

 

[SupraMario]

Care to take a look at what I pay in my 45% FICA tax bracket? I'm not the "middle man" you speak of. According to the US government, I'm wealthy (not really sure how that works, I'm successful, but I sure as hell don't feel wealthy...) and I pay out the ass. Yes, I have writeoffs, and have ways to defer SOME of the tax they charge me, but I still pay out more in taxes annually than a lot of people make.

I will agree that the middle guy does pay, too much in taxes, but he pays a higher price in other ways.

I'll give you an example of what REALLY happens. Tomorrow, they tell me that my tax rate is going up 20%, here's some of the things I do as a result:

I fire my landscaper.
I fire my housekeeper.
I reduce my sattelite tv and similar services to the minimums, or remove them.
I remove one of my two internet connections at the house.
I cancel my netflix account.
I stop modding my cars.
I stop eating out at resturants & fast food joints.
I reduce the features on my telephone service.
I stop paying someone to change my oil.
I stop a good portion of the investing I do.
I stop all discretionary spending.
I don't go on vacation.
I no longer spend $8 +/- at Starbucks

What does all this translate to?

Jobs

Well this is how it works.
A man who make 50k a year is charged around 8k in taxes.
now, you say a man who makes 3mil is charge 1mil
who is hurt worse?
think about it, the man with 2mil is still a hell of a lot better off than the man who is now at 40-42k,
Now, lets factor in 2 kids, and a house payment.
2mil guy has the same.
whos still better off.
POINT IS. the rich dont need to be fuckin complaining, you make money you still have a shit load left. yes you may have worked for it, but you still have to pay taxes on it, more money MORE TAXES.
understand?

 

[Shytheed Dumas]

Well SC, I'm glad to see we can pretty much agree here. The current tax setup is a joke and a dinosaur. First we're over taxed, and the whole country suffers. It's been shown that a total tax burden of 25% (income, sales, property - everything!) provides the best economic growth, government income, and wealth for citizens. We are way in excess of 25%. Worst of all, our current system encourages making little, staying in debt, and relying on the government while discouraging things like maximizing income, saving, investing, and reducing debt.

A flat tax is a start, but a consumption tax is where it's at, because it encourages the best things like personal responsibility (saving for retirement is encouraged), and gives YOU the opportunity to determine your tax rate by what you spend. When will we get there?

 

[Supracentral]

Well this is how it works. A man who make 50k a year is charged around 8k in taxes. now, you say a man who makes 3mil is charge 1mil who is hurt worse?

Who is hurt worse? You want someone to be "hurt"? Sounds like you hold a grudge against anyone who makes more than you. How much more? Is $1000 a year more than you ok? $10,000? At what point do people stop being people to you and become a "target" for your looting, envy and greed?

How about a fair tax that treats everyone equally?

think about it, the man with 2mil is still a hell of a lot better off than the man who is now at 40-42k, Now, lets factor in 2 kids, and a house payment. 2mil guy has the same.whos still better off.

This is the endless cry of those who have failed. What about the guy who has X but only makes Y.

If you don't make enough to afford a house payment and two kids, you probably shouldn't have them...

POINT IS. the rich dont need to be fuckin complaining, you make money you still have a shit load left. yes you may have worked for it, but you still have to pay taxes on it, more money MORE TAXES. understand?

10% Flat Tax:

Man who makes $50,000 pays $5,000
Man who makes $500,000 pays $50,000

More money = more taxes. Understand?

You want to penalize success. Where's my (or anyone's) motivation to make more when you insist that the more I make, the higher you'll jack my percentages? Is there a point where you say once I make a certain amount a year you just take 100% of the rest? Since you decided it's enough?

I'll let you in on a little secret, money is EARNED not distributed. You don't need to be complaining either. Don't like what you make? Go make more, don't take my money at the end of a gun barrel.

That's stealing. Theft motivated by pure greed. While we're at it, let's define the word "greed".

Greed - excessive or reprehensible acquisitiveness.

Simply put, greed is wanting more than you can earn.

I earned my money. What gives you the right to decide how much of it is "enough"? You'll sit there and creatively justify why it is ok for you to make that decision. You'll parade around stating that there's some sort of nobility in failure.

So tell me, who is greedy?

I'd say it's the guy who wants money he hasn't earned.

I'd suggest you go read this: http://www.bard.net/

It might correct a few of your misconceptions.

 

[Supracentral]

A flat tax is a start, but a consumption tax is where it's at, because it encourages the best things like personal responsibility (saving for retirement is encouraged), and gives YOU the opportunity to determine your tax rate by what you spend. When will we get there?

That's what the fair tax is. 100% consuption based tax.

Under that plan the poor will never pay a dime in taxes...

And it completly erodes the power base of the people in D.C. who peddle tax code for votes.

 

[SupraMario]

So tell me, who is greedy?

The rich who complain, the poor who complain, the middle man is just pissed.
People who make 50k a year are not angry because they make so little, most of the time its these people who are happy and content.
They get pissed because they listen to the rich say "we are getting taxed to hell"
and the poor saying "give us more"
THATS who is greedy.

I earned my money. What gives you the right to decide how much of it is "enough"? You'll sit there and creatively justify why it is ok for you to make that decision. You'll parade around stating that there's some sort of nobility in failure.

you may have, but so has the middle man, its no reason for the rich to say, "im being taxed more than the middle man, or the poor guy" because thats what this post is about,
THE RICH IS GETTING TAXXED TO MUCH.
BULLSHIT.

You want to penalize success. Where's my (or anyone's) motivation to make more when you insist that the more I make, the higher you'll jack my percentages? Is there a point where you say once I make a certain amount a year you just take 100% of the rest? Since you decided it's enough?

Penalizing success would be the equivelent of a grocery worker making as much as a doctor does.
thats penalizing success.
that guy who made 3mil is still pocketing 2mil.
the man who made 50k is still pocketting 42k.
one is better off than the other.
so their is no reason for the rich to bitch that they lost 1mil while the man who is the blue callor(sp) worker, lost only 10k.


I think we are on the same page or close to it, im not defending the people who bitch.

 

[Shytheed Dumas]

Penalizing success would be the equivelent of a grocery worker making as much as a doctor does.
thats penalizing success.

I think we are on the same page or close to it, im not defending the people who bitch.

Sorry, that doesn't work. You're right that making equal pay for grocers and doctors is penalizing success (i.e. inappropriate pay for training, responsibility, etc), but it is no less of a penalty to make more money and then have it taken away - same outcome, different way of getting there. The current tax system absolutely penalizes not only personal success, but discourages entreprenurealship and the job creation that goes with it.

Believe me, any "middle man" who complains the rich aren't taxed too much would be the first to change their tune if they came up with the next great idea, took all of risks to grow and nurture it and create jobs, which is in a sense sharing the wealth [EDIT: and then had it taken away in taxes.] It's the spirit, idea, risk taking and hard work that earns them their money, and SC's right that nobody has the right to determine how much is too much - the market decides that.

One very important thing to remember: It is NOT a zero sum game! If I'm rich (and I'm not, btw), it does not mean that somebody else had to get poorer to make me that way - I had to earn it. Our economy grows, money is printed, money is earned from overseas, etc, which means that there is always a supply of NEW money for those who wish to find a way to earn it. Don't begrudge them for it.

Same for those who save. Every middle or lower earner can start saving early in life and get rich by the time they retire. Should a guy who never made more than $50K in his life, raised a family, lived on less than he made and saved be penalized, because his intelligence, responsible living, and disclipline made him "rich" over a lifetime? No reasonable person should think so, but our tax laws and traditional rich/poor thinking do just that.

 

[SupraMario]

Believe me, any "middle man" who complains the rich aren't taxed too much would be the first to change their tune if they came up with the next great idea, took all of risks to grow and nurture it and create jobs, which is in a sense sharing the wealth. It's the spirit, idea, risk taking and hard work that earns them their money, and SC's right that nobody has the right to determine how much is too much - the market decides that.

Thats the problem, the middle man(well the honest real middle man) isnt complaining the rich arent getting taxed enough, they want the rich to shut up and the poor to shut up, because the rich complain they have it hard, and the poor say the same thing, just with a different twist.

Only the rich and poor say how much is to much.

 

[rakkasan]

Thats the problem, the middle man(well the honest real middle man) isnt complaining the rich arent getting taxed enough, they want the rich to shut up and the poor to shut up, because the rich complain they have it hard, and the poor say the same thing, just with a different twist.

Only the rich and poor say how much is to much.

Let's just turn into a communist state and be done with it, right?

I paid 42% in taxes last year. I paid 18% (on average) in taxes on the measily shit I made during my years in the Army (most of which I was deployed to foriegn soil). I reserve the right to bitch about paying taxes.

I say go to a consumption tax also. I hate knowing that my money goes to welfare riding idiots. Don't get me wrong, I don't mind my government helping out those who hit hard times, but when I see a person getting out of a car that's sporting $5k in rims with a fist full of food stamps, I get a little cranky.

I work a minimum of 65 hours a week. I own a business, I work very hard. I don't like the fact that someone feels as if my dedication to my work & to my family gives them the right to demand more of my money just because they think its unfair to them they make less money than I do.

 

[SupraMario]

Let's just turn into a communist state and be done with it, right?

I paid 42% in taxes last year. I paid 18% (on average) in taxes on the measily shit I made during my years in the Army (most of which I was deployed to foriegn soil). I reserve the right to bitch about paying taxes.

I say go to a consumption tax also. I hate knowing that my money goes to welfare riding idiots. Don't get me wrong, I don't mind my government helping out those who hit hard times, but when I see a person getting out of a car that's sporting $5k in rims with a fist full of food stamps, I get a little cranky.

I work a minimum of 65 hours a week. I own a business, I work very hard. I don't like the fact that someone feels as if my dedication to my work & to my family gives them the right to demand more of my money just because they think its unfair to them they make less money than I do.

So you agree with me then?

 

[Supracentral]

The rich who complain, the poor who complain, the middle man is just pissed. People who make 50k a year are not angry because they make so little, most of the time its these people who are happy and content.

Ok, "pissed" or "happy and content" - please pick one. If you are going to contradict yourself twice in as many sentences, you aren't going to be taken very seriously.

They get pissed because they listen to the rich say "we are getting taxed to hell" and the poor saying "give us more" THATS who is greedy.

Ok, sounds a lot more like "pissed" than "happy and content" - we'll go with that.

Anyone who actually pays taxes is "getting taxed to hell" as you so eloquently put it. I'm not asking you to "give" me anything. I don't want it. I want to keep what is mine. And I want you to keep what is yours. Under the fair tax system (still haven't read a word of it have you?) taxation occurs only when you spend money beyond the bare necessities of life. The poor guy, he pays nothing, he is, by definition, poor. He doesn't have the ability to spend any money beyond the bare necessities. The middle class guy, he's got some money to spend, so he pays some tax. The rich have a lot to spend, as they spend it they pay huge taxes. However if any of the people decide to save some money, they are free from tax on that money.

What the fair tax system does is remove the ludicrous amount spent on trying to comply with an insane tax code and it gets the government out of the business of how you go about making money.

you may have, but so has the middle man, its no reason for the rich to say, "im being taxed more than the middle man, or the poor guy" because thats what this post is about,

It's the truth. Deal with it. The numbers do not lie. If the government takes 45% of what I make and 25% of what you make, they are taking 20% more of my money. Get that through your head. They are taking a higher percentage of my money. Period. That's a fact. There's no interpertation there. It's simply the fact that you feel that I have more, therefore that give someone (you) the right to take if from me by force.

Let's turn the tables. Let's look at the number of hours a week free time you have. Let's pretend you are "rich" in free time and I'm "poor" in free time.

I work anywhere from 12 to 16 hours a day on any given weekday. I work anywhere from 8 to 10 hours a day on the weekend. I work a full time professional job and run two (soon to be 3) businesses on the side. That's how I make money. I work for it. If you are making $50K a year, you likely work somewhere between a 40 to 60 hour work week. Let's call it an average of 50 hours on any given week. No let's say you work 60 since you are such a hard worker.

Since I'm working close to 90 hours a week, I demand that you be taxed on your free time. You have to give up 15 hours a week of your free time. You have more right? I survive on less free time than you do! I work 30 hours a week more than you. I feel I have enough free time to get by, you shouldn't be allowed to hoarde that free time! You filthy "free time rich" pig! You need to do some work for free in those 15 hours! You still have 15 more hours of free time left than I do. You need to come mow my lawn! You have no right to complain! You have more time! You need to give it up. You have no right to complain since I have less free time than you!

See how incredibly mad that makes you? See how incredibly stupid that sounds? That's exactly what you are saying to me about money.

Penalizing success would be the equivelent of a grocery worker making as much as a doctor does. thats penalizing success.
that guy who made 3mil is still pocketing 2mil. the man who made 50k is still pocketting 42k. one is better off than the other.

Yes, one is in fact "better off" than the other. Because he earns more. But you don't like that. You want to take some of that money he earned away, because somehow in your twisted socialist mind, he doesn't deserve to keep what he earns. You are somehow better than him, or more deserving than him.

so their is no reason for the rich to bitch that they lost 1mil while the man who is the blue callor(sp) worker, lost only 10k.

Yes there is. If you take a higher percentage from one man than you do from another.

I think we are on the same page or close to it, im not defending the people who bitch.

I'm not even sure we're in the same book.

 

[rakkasan]

So you agree with me then?

Not on this subject.

 

[SupraMario]

Ok, "pissed" or "happy and content" - please pick one. If you are going to contradict yourself twice in as many sentences, you aren't going to be taken very seriously.



Ok, sounds a lot more like "pissed" than "happy and content" - we'll go with that.

Anyone who actually pays taxes is "getting taxed to hell" as you so eloquently put it. I'm not asking you to "give" me anything. I don't want it. I want to keep what is mine. And I want you to keep what is yours. Under the fair tax system (still haven't read a word of it have you?) taxation occurs only when you spend money beyond the bare necessities of life. The poor guy, he pays nothing, he is, by definition, poor. He doesn't have the ability to spend any money beyond the bare necessities. The middle class guy, he's got some money to spend, so he pays some tax. The rich have a lot to spend, as they spend it they pay huge taxes. However if any of the people decide to save some money, they are free from tax on that money.

What the fair tax system does is remove the ludicrous amount spent on trying to comply with an insane tax code and it gets the government out of the business of how you go about making money.

People can be content with the system, yet be pissed at the people who point fingers saying "he gets taxed less". dont point fingers, you have money and you have the lobbiest, FIX IT, something must be working up there at the top, cause all those big CEO's that are making massive amounts of money havent really stepped foward and said "uhh, we dont like this system" cause it would have been changed by now.
Yes I read it, and I agree with it totally, but what I am saying right now applies to the current tax system we have, I think it sucks too, so its not just the rich who "lose" money. The is more middle men then there are rich and poor.
We are paying too.

It's the truth. Deal with it. The numbers do not lie. If the government takes 45% of what I make and 25% of what you make, they are taking 20% more of my money. Get that through your head. They are taking a higher percentage of my money. Period. That's a fact. There's no interpertation there. It's simply the fact that you feel that I have more, therefore that give someone (you) the right to take if from me by force.

Let's turn the tables. Let's look at the number of hours a week free time you have. Let's pretend you are "rich" in free time and I'm "poor" in free time.

I work anywhere from 12 to 16 hours a day on any given weekday. I work anywhere from 8 to 10 hours a day on the weekend. I work a full time professional job and run two (soon to be 3) businesses on the side. That's how I make money. I work for it. If you are making $50K a year, you likely work somewhere between a 40 to 60 hour work week. Let's call it an average of 50 hours on any given week. No let's say you work 60 since you are such a hard worker.

Since I'm working close to 90 hours a week, I demand that you be taxed on your free time. You have to give up 15 hours a week of your free time. You have more right? I survive on less free time than you do! I work 30 hours a week more than you. I feel I have enough free time to get by, you shouldn't be allowed to hoarde that free time! You filthy "free time rich" pig! You need to do some work for free in those 15 hours! You still have 15 more hours of free time left than I do. You need to come mow my lawn! You have no right to complain! You have more time! You need to give it up. You have no right to complain since I have less free time than you!

See how incredibly mad that makes you? See how incredibly stupid that sounds? That's exactly what you are saying to me about money.

for some reason, i get the feeling you are falling in the catagroy of upper middle class.

Yes, one is in fact "better off" than the other. Because he earns more. But you don't like that. You want to take some of that money he earned away, because somehow in your twisted socialist mind, he doesn't deserve to keep what he earns. You are somehow better than him, or more deserving than him.

why would i want him to have more of his money taken away, I wont see any of it, hell that person right now ur speaking of, is paying my paycheck.
Yea it sucks that your losing more than me but, believe me it hits me in the pocket more than it does you. IT STILL sucks that you lose more, but it hurts me more because I make less. I cant do much about that, but people who money can, they have more of an influence over the government, and dont say "no they dont"

I'm not even sure we're in the same book.

I hope i have explained my stance on this better, I agree with you on all of this, but saying "I get taxed more" and then pointing fingers at me, doesnt do jackshit. I'm not pointing fingers at you and saying HE MAKES MORE, im saying stop complaining about it, it sucks on both sides of the fence.
even if it is only a 25% lose, it still hurts LIKE a 70 or 80% lose.