US tax system simplified - PeachParts Mercedes-Benz Forum

10fords · #1 01-09-2011, 12:06 AM

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 total.
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 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. 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.

#2 01-09-2011, 12:18 AM

That's good, and it has a good amount of truth. I don't think most people mind paying taxes (too much) as long as they think the system is reasonably fair. However, there is a difference between being the guy how pays more because he can afford it and is "giving back" and being the guy who pays more because he is being punished.

layback40 · #3 01-09-2011, 12:19 AM

Very good description of how it works !

Chas H · #4 01-09-2011, 12:26 AM

If the rich were being ripped off to the extent of the posted fable I think they would do something about it.
I haven't seen a ground swell of the wealthy to change the current tax laws. In fact, I believe they would oppose any change, and that would include the so-called "fair tax" and the "flat tax" proposals.

Hatterasguy · #5 01-09-2011, 12:29 AM

The parties have people so worked up, most people don't pay much in the way of taxes but they seem to care for some reason. You have people making $60k a year that for some reason give a crap about the top 1%, a group they will never be part of, and they don't understand how said group takes their taxable income.

Yet they are opposed to their tax rates, good marketing on the 1%'s part. The poor (sub $40k) pay nothing and quite frankly other than motivating them to vote no one cares.

The way the current tax system is set up favors the wealthy(its written by them), the middle class as usual get screwed, and the poor get a free ride. This is a problem.

Hatterasguy · #6 01-09-2011, 12:34 AM

The system we need is for everyone to pay. The poor need to pay a certain percentage, even if their claimed income is only $100 a year, it should be 10%-15%.

Also the high bracket needs to pay more to force that group to keep the money in the companies. IE over $500k should be taxed at 70% or more. That group can control their income, so it doesn't really affect them as much. They will just take $500k for slush cash and the rest will stay in the business, and the business will buy them stuff, etc.

The problem is the parties have the middle class so worked up about this crap, when it simply won't affect them.

What we need to do is force people to reinvest in the system. Back in the 50's when income taxes were high business owners and CEO's were forced to do this. Now its all about pumping the companies profits through any means and taking a big bonus after 2 years worth of work than cashing out. Its BS.

#7 01-09-2011, 12:34 AM

Quote:

Originally Posted by Chas H

If the rich were being ripped off to the extent of the posted fable I think they would do something about it.
I haven't seen a ground swell of the wealthy to change the current tax laws. In fact, I believe they would oppose any change, and that would include the so-called "fair tax" and the "flat tax" proposals.

Those numbers don't tell the whole story. Someone with significant wealth has some additional tools to avoid excess taxes. The folks in the upper few percentiles normally do not have a traditional "W-2" type of job, they are more likely to be the principal in a business where they can control how much of their compensation is considered income in a given year. They also will have other strategies to shield wealth from taxes. They certainly pay more taxes than the rest of us, but they do know how to work the system. Most of the complaining will come from the next "tier" of taxpayers, those how have a decent income but don't have the same tax avoidance tools as the "rich" guy.

Chas H · #8 01-09-2011, 12:44 AM

Quote:

Originally Posted by Craig

Those numbers don't tell the whole story. Someone with significant wealth has some additional tools to avoid excess taxes. The folks in the upper few percentiles normally do not have a traditional "W-2" type of job, they are more likely to be the principal in a business where they can control how much of their compensation is considered income in a given year. They also will have other strategies to shield wealth from taxes. They certainly pay more taxes than the rest of us, but they do know how to work the system. Most of the complaining will come from the next "tier" of taxpayers, those how have a decent income but don't have the same tax avoidance tools as the "rich" guy.

The income tax laws we have are generally quite fair. The laws defining what constitutes income are not. Those laws are not going to change as long as the affected can buy off congress.

WANT '71 280SEL · #9 01-09-2011, 12:52 AM

It's the top 1% of the wealthy that wrote our tax laws? Democracy is letting two wolves and a sheep vote on what's for dinner.

Chas H · #10 01-09-2011, 12:58 AM

Quote:

Originally Posted by WANT '71 280SEL

It's the top 1% of the wealthy that wrote our tax laws? Democracy is letting two wolves and a sheep vote on what's for dinner.

Who contributes the most to campaigns, the wealthy, or otherwise?

WANT '71 280SEL · #11 01-09-2011, 01:02 AM

"keep the money in the companies"??? A simple understanding of economics would show that there is no such thing as "keeping money in the companies." If you make 110 million a year, even if you only spend a million a year, that doesn't mean there is 109 million missing from the economy that could otherwise be spurring economic growth. Money saved is, first of all, deferred spending, and secondly, it's spurring investment. That 109 million being saved is sitting in a bank, or on the stock market, or in a mutual fund for others to borrow from the bank to grow their businesses, or buy that house they can't afford, etc. Therefore, taxation isn't "spurring economic growth" because it's putting money into the economy that would not be there otherwise; rather, it's taking money OUT of what you think is the economy (not actually possible) and pouring it into a system that believes it can defy the laws of economics (not actually possible, either).

Best Regards,

David

#12 01-09-2011, 01:04 AM

Quote:

Originally Posted by Chas H

The income tax laws we have are generally quite fair. The laws defining what constitutes income are not. Those laws are not going to change as long as the affected can buy off congress.

I don't know if they are "fair," but I don't have a huge problem with them either. The reality is that majority of the tax money is always going to come from the same people, regardless of the details of the tax code. The very top does pay a lot of taxes, but there are not enough of them to really make a difference (i.e., you could take all the money from the top couple of percent and you wouldn't make a dent in the budget). The bottom 30 or 40 percent simply don't have any money, so you are not going to get any blood from that turnip. That leaves those of us in the middle paying the freight; you can tweak around with the tax code all you want, but I know that I will end up paying enough tax to buy a pretty nice new benz every year. I don't know if it's fair, but that's they way it has to work if you want to support a large government.

WANT '71 280SEL · #13 01-09-2011, 01:05 AM

What you'd consider the "wealthy" (people that make more money than you). The loopholes are the problem with our current tax system. They created the loopholes to get around the rules that they put in. Tax code is now over 50,000 pages!

Best Regards,

David

Chas H · #14 01-09-2011, 01:09 AM

Quote:

Originally Posted by Craig

I don't know if they are "fair," but I don't have a huge problem with them either. The reality is that majority of the tax money is always going to come from the same people, regardless of the details of the tax code. The very top does pay a lot of taxes, but there are not enough of them to really make a difference (i.e., you could take all the money from the top couple of percent and you wouldn't make a dent in the budget). The bottom 30 or 40 percent simply don't have any money, so you are not going to get any blood from that turnip. That leaves those of us in the middle paying the freight; you can tweak around with the tax code all you want, but I know that I will end up paying enough tax to buy a pretty nice new benz every year. I don't know if it's fair, but that's they way it has to work if you want to support a large government.

The wealthy pay a lot in taxes. Any of the proposed tax reforms would require them to pay much more.

#15 01-09-2011, 01:12 AM

Quote:

Originally Posted by WANT '71 280SEL

What you'd consider the "wealthy" (people that make more money than you). The loopholes are the problem with our current tax system. They created the loopholes to get around the rules that they put in. Tax code is now over 50,000 pages!

Best Regards,

David

Which loopholes don't you like; home mortgage deductions, retirement accounts, charity, educational expenses, interest from municipal bonds, deductions for dependents, inheritance tax, etc.? There is a ton of "social engineering" built into the tax code to try to get people to do the "right things" with their money. Most of us take advantage of some of those loopholes. If you get rid of the loopholes and lower the rates, we will probably end up paying about the same.