Tax cuts explained

A little gem making the email rounds:

Explanation of tax cuts -- Even Nancy Pelosi should understand this!

Sometimes politicians, journalists and others exclaim; "It's just a tax cut
for the rich!" and that is just accepted to be fact, without question. But
what does that really mean? Just in case you are not completely clear on
this issue, the following might help.

Let's put tax cuts in terms everyone can understand. Suppose that every
day, ten men go out for beer, drink the same amount, 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 on 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.

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

"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!

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 drinking overseas where the
atmosphere is somewhat friendlier.

>>>>>>>> David R. Kamerschen, PhD
>>>>>>>> Professor of Economics
>>>>>>>> University of Georgia

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MXI said...

Forget about the taxes a moment, every time time I get on here I crave a hotdog, I mean reeeeaaallyy crave! Do you deliver to Canada? No hurry I'll wait till 6pm.

hotdogman said...

Sorry, even if I did deliver they'd be a bit cold by the time I got to Canada. Try La Belle Provence (not as good as mine) to hold you over until you make it south.

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