Tax Cuts - A Simple Lesson In Economics

1. Tax Cuts - A Simple Lesson In Economics

This is how the cookie crumbles. Please read it carefully. Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner.

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 \$7.
The eighth \$12.
The ninth \$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."

So, now dinner for the ten only cost \$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, the paying customers? How could they divvy up the \$20 windfall
so that everyone would get his 'fair share'?

The six men 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 \$2? 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 at the table anymore. There are lots of good restaurants in Europe and
the Caribbean.

David R. Kamerschen, Ph.D
Distinguished Professor of Economics
536 Brooks Hall
University of Georgia

2. Sanra,

3. could not have said it better myself. Great Job if you printed this in the local paper thier would still be some with

4. It's a funny but true lament. I heard it on one talk show a couple of years ago. Too bad the politicans don't listen.

Allen

5. Hmmmm, very nice post - it gives something to ponder on.

6. Interesting, but it is "oversimplified."

7. Sambay,

You know that newspapers today are written for a 9th grade level education. Simple is the only way to communicate with the masses.

Luckly, I didn't drop out of High School until 11th grade...

Allen

8. <BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR>Originally posted by Gearshopper:
It's a funny but true lament. I heard it on one talk show a couple of years ago. Too bad the politicans don't listen.

Allen <HR></BLOCKQUOTE>

Actually, it's not the politicians that don't listen, it's the common man (fed by headline seeking journalists) who don't understand. I sincerely believe the politicians DO understand, both left wing and right wing. The question that separates the two sides is which is more fair - flat tax or graduated?