4.15.2005

Happy tax day

Yes, it's April 15th, and the final hours are ticking away before you have to have your deadlines filed. Just think, you are doing your civic duty by handing over a rather large sum of money for the federal government to spend.

And spend it they shall. Of course, it's not going to be enough, so they'll just run a deficit again.

I'm not blaming the current administration for that - I'm blaming almost every politician. See, they forgot the other half of that "tax cuts increase revenue" equation. You have to reduce spending, or at least reign it in. Instead, spending keeps going up - at some point, people are going to wake up and realize that they spend until mid-April working just to earn enough money to pay the government.

That's right. Until sometime this month, every dime you make, of your gross income, goes to pay taxes in one form or another. Depressing, isn't it?

(When Tax Freedom Day rolls around, I'll provide some links and other neat stuff.)

I did decide to include this. The original author is unknown (according to Snopes), and while the real world is a little more messy than the example, the basic concept is correct.

How Taxes Work . . .

This is a VERY simple way to understand the tax laws. Read on -- it does make you think!!

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, and the tenth man — the richest — would pay $59.

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 (in tax language a tax cut).

"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 $80.00.

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 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 paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of his earlier $59. 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 who pointed to the tenth. "But he got $7!"

"Yeah, that's right," exclaimed the fifth man, "I only saved a dollar, too . . . It's unfair that he got seven times more than me!".

"That's true!" shouted the seventh man, "why should he get $7 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 he 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, a little late what was very important. They were FIFTY-TWO DOLLARS short of paying the bill! Imagine that!

And that, boys and girls, journalists and college instructors, is how the tax system works. The people who pay the highest taxes get the most benefit from a tax reduction.

2 Comments:

Blogger Kyle said...

I like the parable, but it ignores what I think is an important part of progressive taxation. A more accurate parable would say that the richest guy got the best meal of them all. You don't see poor people tying up tax-funded courts for years on end with their lawsuits. True, the poor get benefits from social programs that the rich don't utilize, but I actually think those cost less (while benefitting more).

2:00 PM  
Blogger Garou said...

I wouldn't necessarily argeu that the richest guy got the best meal at that restaurant. Since (in theory) tax dollars are used to roads & other public works, safety-net programs, etc, everyone benefits equally, at least in theory.

The very poor should have access to the same quality of roads, water, etc as the very rich, and benefit in the same manner from the national defence, etc. Likewise, the very poor have access to safety-net programs.

The problem with the parable is that the rich can still afford to go to another restaurant.

Are progressive taxes a good thing? In moderation, yes. But I, for one, do not want to go back to the days where the highest tax brackets are 70-90%.

12:44 PM  

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