If you have any friends or relatives that don't understand how tax cuts"work" they might benefit from this explanation.Tax Cuts ExplainedLet's put tax cuts in terms that everyone can understand. Suppose thatevery 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 somethinglike 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 (29% 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 $50 instead of $59 (15% 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 $9!" "Yeah, that's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he got nine times more than me!" "That's true!!" shouted the seventh man. "Why should he get $9 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.
Thank you. This is the absolute perfect rebuttal to an otherwise undemocratic argument against taxation. I'm sad to say that I'm not the "rich" guy, but I still understand that they are helping me eat dinner without going broke. Thanks again,mnc
"Tax Cuts Explained" has been floating around the Internet for so many years I would have thought it would be waterlogged by now.Perhaps the simplest, and profoundest, answer to the fundamental question posed by it was said by Theodore Roosevelt. “The man of great wealth owes a peculiar obligation to the State, because he derives special advantages from the mere existence of government.”
I would rather go with a Nobel Prize winner in economics than a politician.http://www.techcentralstation.be/101504J.htmlDuring an interview last week on CNBC financial television, Dr. Prescott told the audience that, "What Bush has done has been not very big, it's pretty small" in terms of bringing down federal income taxes. But Prescott went further, saying, "Tax rates were not cut enough" and noted "Lower tax rates provided an incentive to work."____________________________________________________________--fleg
"Economics is the only field in which two people can share a Nobel Prize for saying opposing things."Specifically, Myrdal and Hayek shared one.I find his remarks rather ironic, considering that his seminal work is centered on the idea that policies that yield short-term benefits are negated in the future by changes in expectations. Or in other words, quick fixes invariably get canceled out by changes in behavior."Real business cycle theory" -- Prescott's balliwick -- has some interesting points, and in the case of applying more rigorous mathematics to certain problems has made a real contribution, but like all forms of blackboard economics, it has its problems when it runs into the manifold complexity of modern civilizations.I would rather go with an experienced engineer than a theoretician when building bridges... Purely an aside, did you know that Theodore Roosevelt also was a Nobel Prize winner?
The man of great wealth owes a peculiar obligation to the State, because he derives special advantages from the mere existence of government.This rob-from-the-rich-and-give-to-the-poor idea makes for good theater, but it remains the stuff of socialism and of noblesse oblige claptrap. The man of great wealth has the same rights--and obligations--as the rest of us. The fact that TR is the source of this quote doesn't make the quote any more true. We don't need any more class warfare then Senator Kerry already is trying to inflict on us.Eric HInes
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