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Thread: Understanding Tax Cuts

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    Default Understanding Tax Cuts

    Understanding Tax Cuts

    Sometimes politicians, journalists and the liberal left 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, I hope the
    following will help. Please read it carefully.

    Let's put tax cuts in terms everyone can understand.

    Suppose that every day, ten men go out for dinner 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 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." Dinner for the ten now cost just $80.

    The group still wanted to pay their bill the way we pay our taxes, so the
    first four men were unaffected. The first four would still eat 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 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 (the richest) 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 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 dinner, so the nine sat
    down and ate without him. But when it came time to pay the bill, they
    discovered something very 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 eating overseas where the
    atmosphere is somewhat friendlier.

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    Default Re: Understanding Tax Cuts

    ^^^ yes, exactly ! However, your example doesn't strictly match the reality of America's tax system. In reality, the rich already eat 50% of their dinners overseas such that their actual dinner bill is only 1/2 of what your example shows. This results in the 7th, 8th and 9th men paying significantly more than your example shows in order to make up for the dollars that are theoretically 'supposed' to be paid by the 10th man but in reality is only 1/2 paid !

    I would also point out that attempting to 'burden' the rich has many similar consequences in the general economy as well ...



    (snip)"The DiRenzos aren't unlike many American families cutting back to weather a downturn. They're just richer.

    To be sure, the poor and middle-class are being hurt more, but upper crust thriftiness could reverberate across the rest of the economy.

    The 10 percent of households with the highest incomes account for nearly a quarter of all spending, according to data compiled by research firm Moody's Economy.com from a 2006 federal survey.

    "That does suggest those folks are important for the spending outlook, and the overall economic outlook," said Scott Hoyt, Moody's director of consumer economics.

    Other government data show households in the top one-fifth of the U.S. population ranked by income earn about half of all total personal income before taxes — an imbalance that gives the wealthy immense economic clout, said Sara Johnson, an economist at the research firm Global Insight.

    "Consumer spending makes up 70 percent of gross domestic product, and when one group accounts for a very substantial share of consumer spending, they also account for a large share of the economic activity that creates jobs," Johnson said.

    On Friday, the Labor Department reported that the unemployment rate had jumped to the highest in four years. The housing slump, tighter credit, high fuel prices and a lack of confidence is causing employers to cut expansion plans, or even let employees go."(snip)

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    Default Re: Understanding Tax Cuts

    Quote Originally Posted by Melonie View Post
    ^^^ yes, exactly ! However, your example doesn't strictly match the reality of America's tax system. In reality, the rich already eat 50% of their dinners overseas such that their actual dinner bill is only 1/2 of what your example shows. This results in the 7th, 8th and 9th men paying significantly more than your example shows in order to make up for the dollars that are theoretically 'supposed' to be paid by the 10th man but in reality is only 1/2 paid !

    Off-shoring? Not every 'rich' person is doing that, and with closing loopholes over the last decade, it is not what it once was.

    From the top of my head:

    top 1% = 40% of taxes
    top 10% = 70% of taxes
    bottom 50% = 2% of taxes (and only because of AMT, another make the rich pay scheme that hasn't been used against the rich)

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    Default Re: Understanding Tax Cuts

    try these latest figures from the IRS ...

    top 1% pay 39.4% of all income tax dollars
    top 5% pay 59.7% of all income tax dollars
    top 10% pay 70.3% of all income tax dollars
    bottom 50% pay only 3.07% of all income tax dollars

    I would also add that the bottom 50% AGI income amount is around $32,000 per year, and that the top 10% AGI income amount is around $92,000 per year.

    if you really want to nauseate yourself, have a look at the calculations at - which goes a step farther and accounts not only for the amount of money 'taken' by the gov't in the form of taxes, but also for the amount of money 'spent' by the gov't in the form of social welfare benefits, retirement benefits, and other benefits ! Table 30 is especially interesting !

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