blather
taxes_and_how_they_work
. David R. Kamerschen, Ph.D., Distinguished Professor of Economics, U of Georgia

Sometimes politicians can 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, we hope the following will help.

Tax Cuts - A Simple Lesson In Economics by David R. Kamerschen, Ph.D.,
Distinguished Professor of Economics; 536 Brooks Hall, University of
Georgia.
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 . 		041201
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stork daddy i hear sweden's a good place to start. 041201
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stork daddy first of all, they already aren't at the same table. the idea that the poor are getting the "same meal" in terms of the public allocation of funds totally simplifies federal allocation of funds as well as overlooks state and local taxes. Of course a percentage based tax cut will favor those with large sums of money, just as a percentage based increase will be to their detriment. The argument is rather that a tax cut isn't appropriate in times of increased federal spending. Especially so when the only group who would have substantial interest in such a tax cut are those for whom it represents a windfall far out of proportion to their actual living expenses. For a middle class family, the amount on those checks helps more than nothing, but just barely.

in truth a more equitable system would be to award tax cuts in proportion to one's closeness to the poverty line. now to some this sound frighteningly like the marxist maxim "from each according to their ability, to each according to their need." It certainly need not be that drastic, however.

In truth I imagine a socialist society as more idealistic, more balanced, less stratified, while still retaining other necessary freedoms of expression.

However, I am much more for democracy than socialism and so will defer to it, including the desire by the majority in society to keep their money to themselves when possible.

I will note though that your line about the rich leaving the table demonstrates your feelings about the instability of a system that burdens the rich.

It has been shown, however, that aristocracies are also quite unstable. Even in your example they beat the rich man up.
As for this idea that you'll have solved the resource gap that is endemic of unchecked capitalism simply by moving to Europe, it is pretty unlikely.

Oh, and good luck with those exchange rates. 		041201
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stork daddy It is especially ironic that you mention Europe as a place you can escape such stratification and resentment of the rich, when the very way many European countries have accomplished this is by regulation of taxes and limits on capitalism.

It is strange that America has such a high poverty rate for being so industrialized. What exactly would you attribute it to? Do you really think Americans are by nature shiftless, dumb, and lazy?

It's very easy to defend the morality of a tax cut to the rich using your simplified analogy where everyone is at the same table, and everyone is going away full (some on a FREE ride). It isn't so easy, however, when you look at the grim reality of it. The rich aren't eating at the public table. And more and more, they're trying to shirk their part of the tab.

A better analogy would be them looking at the dinner from a fancy restaurant across the street and thinking, do i really still have to pay for that?

Now maybe you're feeling pretty libertarian and think they should be able to shirk that tab.

I could discuss further the potential problems a government that governs or allocates funds on a free-market basis could run into if you so desire.

Needless to say I don't think highly of the idea. 		041201
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blather fact check from: http://www.arches.uga.edu/~davidk/

Contrary to Internet folklore, Dr. Kamerschen is NOT the author of "Tax Cuts: A Simple Lesson in Economics." Additionally, he does NOT know who wrote it. 		041201
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42 usc 1983 "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20."

But then to make up for its smaller income, the restaurant has to cut costs, so each meal is going to have to be of poorer quality or of smaller portions. So everyone leaves the restaurant a little less well fed than before. Oh, but I'm sure that once everyone's outside this restaurant (which seems to engender an unnatural altruism) the rich guy will give the poor guys a couple bucks to supplement their suddenly inadequate meal though, right? 		041202
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minnesota_chris I knew that as soon as I read the word "distinguished"... no professor would write that word after their own... emeritus maybe, department head sure, but "distinguished?"

I'm minnesota_chris, distinguished blatherer.

The person who wrote that top thing doesn't quite understand tax codes. Close, but... not entirely right. 		041202
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