US Tax System explained

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Good work by a Professor at Georgia, just more proof that if nobody tried to cheat the current system it would work just fine

----- THE REAL TAX TRUTH

For those on the left who claim the rich don't pay their fair share.
Let's put tax cuts in terms everyone can understand.

Suppose that every day, ten men go out for beer 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 drank in the bar 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 beer by $20." Drinks 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. They would still drink 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 every body's share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar 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 pay $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 drink 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 I!"

"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 drinks, so the nine sat down and had beers 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 anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.

Professor of Economics

University of Georgia

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.

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@Silverchild79,

good post.

now give me my $10 Very Happy

0 Replies

@Silverchild79,

Only problem is the four poorest men are paying their share of the bill, they are just getting it back from the bartender when they leave. It's just too simplistic of an analogy.

1 Reply

@92b16vx,

92b16vx;36361 wrote:

Only problem is the four poorest men are paying their share of the bill, they are just getting it back from the bartender when they leave. It's just too simplistic of an analogy.

I disagree. I liked it, because ultimately the poor end up paying nothing, they just have to jump through hoops. Good post. How about we just do away with the income tax as a rule?

1 Reply

@Freeman15,

Freeman15;36368 wrote:

I disagree. I liked it, because ultimately the poor end up paying nothing, they just have to jump through hoops. Good post. How about we just do away with the income tax as a rule?

tHE POOREST BRACKET DO PAY, AND THEY DO GET IT BACK. tHEY CAN OPT OUT OF PAY BY CLAIMING EXEMPTIONS, BUT AT THE END OF THE YEAR IF THEY HAVE MADE TO MUCH THEY COME INTO A PENALTY..

Sorry about capslock, noticed to late, and didn't want to retype.

1 Reply

@92b16vx,

92b16vx;36371 wrote:

tHE POOREST BRACKET DO PAY, AND THEY DO GET IT BACK. tHEY CAN OPT OUT OF PAY BY CLAIMING EXEMPTIONS, BUT AT THE END OF THE YEAR IF THEY HAVE MADE TO MUCH THEY COME INTO A PENALTY..

Sorry about capslock, noticed to late, and didn't want to retype.

I know this, but it's not intended to be an academic paper, it's intended to be a simplistic look at American tax inequities. He also says they're paying for beer, which is a commodity, whereas our income tax pays for nothing tangible, but that's not the point of the spiel. I propose letting it go.

1 Reply

@Freeman15,

Silver child

It is a good analogy of the earnings tax system and how it works.

Because of earned income credit for families with children , earnings tax would work much the way your post stated. Of coarse it does not take into account that if a married couple with no children is making over 22K a year they then do indeed start to pay income tax , the tax level goes up accordingly from 22K upwards. I think most of us would consider a married couple making 22K as poor people. So the analogy falls a little short in not explaining that it leaves off this scenario too.

But it is not taking into account all the Extra taxes each citizen pays.

start with sales tax on everything including food in most states.

So we have

sales tax

gas tax

SS tax

state tax

property tax - if they are lucky enough to have a house

school tax

Well you get the picture silver child.

We all pay taxes. The working poor certainly pay their share in
consumption taxes. Because everybody has to consume and pay most of the above listed taxes. ( I am sure I forgot a few)

So the analogy is really not true, because if it were , state, SS , and local taxes would fall far short. The little guy by sheer numbers carries the weight of all those.

And of coarse this analogy does not take into account that corporations do not pay hardly any taxes due to depreciations, investment credits, employment credits, and now most not being located in the US .

However they make most of their sales in the US, yet now are off shore and paying no US income tax.

But never fear that is not sustainable for long.

NO JOBS = BAD ECONOMY = NO Taxes being paid by anyone much.

That time is fast approaching.

I would be glad to discuss further the real economy and tax structure in this country if you'd like?

1 Reply

@Silverchild79,

Peach, that's exactly my point.

Quote:

For those on the left who claim the rich don't pay their fair share.
Let's put tax cuts in terms everyone can understand.

This condesending prelude is why this is a garbage analogy. It leaves out the real picture to give a simplistic "explaination", but it isn't even a relevent "explainaton".

0 Replies

@wvpeach,

wvpeach;36380 wrote:

sales tax

gas tax

SS tax

state tax

property tax - if they are lucky enough to have a house

school tax

nearly all of those are state-levied taxes.

the gas tax is split in half (well, not half... most goes to state) and SS is federal, but its based off income, not spending.

property tax is usually local-- county or city which usually covers school tax as well.

Quote:

We all pay taxes. The working poor certainly pay their share in
consumption taxes. Because everybody has to consume and pay most of the above listed taxes. ( I am sure I forgot a few)

So the analogy is really not true, because if it were , state, SS , and local taxes would fall far short. The little guy by sheer numbers carries the weight of all those.

but, they should.
they use the federal roads - hence the gas tax
they send their children to public school, hence the school tax.
when they get old, they too will collect social security (unless someone screws it up for us)

because their poor, does it mean they use LESS roads or LESS schools? i would hazard a guess its probably about even.

Quote:

And of coarse this analogy does not take into account that corporations do not pay hardly any taxes due to depreciations, investment credits, employment credits, and now most not being located in the US .

as a business owner, i can tell you first hand that it's not as great as it sounds.

being semi-self employed, i get taxed double on my non w2 income due to it being 1099 and the self employment tax. My write offs consist of my operating expenses.

on a scale of 100,
20% is expenses, leaving 80% profit.

so, i get to write off 20%, but i get hit 48% on 80%.

frankly, its cheaper to get hit 33% on 100% (vs 48% on 80, which is 38.4%)

effectively, i pay MORE because i have expenses and because i earn money on my own without an EAN.

To compensate so i don't end up owing at the end of the year, I take an additional $45 each for state and federal out of each paycheck, which is on top of the standard claim 0 withholding i have set up for my main 1099 provider.

it's complicated, but small business doesn't get a break.
only the multi-billion dollar companies do.

oh, wait.

WAHHHHHHH the little guy doesn't get any tax cuts, only the rich do. WAHHHHH :headbang:

0 Replies

@Silverchild79,

the poor paying taxes and getting it all back is a usefull tool to prevent the need for tax re-education the first time they go up in tax bracket, which is the ultimate goal of the free market system.

1 Reply

@Silverchild79,

Brian

The whole point of the original post by silver child in my view was to untruthfully give the impression that the poor don't pay taxes. As you can see and have conceded by your follow up posts , the poor most certainly do pay taxes..... their share.

No need to tell me about small business taxes. I know all about them. I am a long time small business owner. I pay what I consider more than my fair share. I have considered opening a office in a Arab country like Halliburton did to avoid taxes all together in the US. But I feel that I should pay some as I am a citizen of this country. Too bad big corporations like Halliburton do not feel the same civic responsibility as I do.

I also know how the share of the pie gets dived up with all taxes to local municipalities , county, state and then finally federal.

You and silver child have just validated what I told you.

Yes the working poor pay taxes. They should everybody should. But just like the rest of us they pay their fair share. For instance using brians example, they pay taxes and some have kids that go to school. What about the ones who have no children? How about the working poor guy who's kids are grown and he goes on paying for the next 30 years? The working poor are being screwed by the tax system , just the same as you and I.:thumbdown:

1 Reply

@Silverchild79,

LOL great analogy Silver.

What do posters define as poor? With welfare, UI and disability assured to all in my Country who's the POOR. Who's this mythical poor in your country?

People who rent appartments for a life time don't pay local tax or school tax yet I as a childless person have been paying it for twenty years. I'd say the poor are better off in the US than many countries.

1 Reply

@Red cv,

Red;36428 wrote:

. I'd say the poor are better off in the US than many countries.

As well they should be

1 Reply

@wvpeach,

wvpeach;36410 wrote:

Brian

The whole point of the original post by silver child in my view was to untruthfully give the impression that the poor don't pay taxes. As you can see and have conceded by your follow up posts , the poor most certainly do pay taxes..... their share.

No need to tell me about small business taxes. I know all about them. I am a long time small business owner. I pay what I consider more than my fair share. I have considered opening a office in a Arab country like Halliburton did to avoid taxes all together in the US. But I feel that I should pay some as I am a citizen of this country. Too bad big corporations like Halliburton do not feel the same civic responsibility as I do.

I also know how the share of the pie gets dived up with all taxes to local municipalities , county, state and then finally federal.

You and silver child have just validated what I told you.

Yes the working poor pay taxes. They should everybody should. But just like the rest of us they pay their fair share. For instance using brians example, they pay taxes and some have kids that go to school. What about the ones who have no children? How about the working poor guy who's kids are grown and he goes on paying for the next 30 years? The working poor are being screwed by the tax system , just the same as you and I.:thumbdown:

Children are the future yes? EVERYONE is resposible for childrens education. EVERYONE should pay school tax kids or not. I do not know any family member (My mom was adopted) that collects social security, by that logic should I be upset that I have to pay SS tax?

I dont know if what I am about to describve is the dreaded flat tax, but in my opinion, everyone REGARDLESS of income, should pay the same percentage of tax. Example.

(these are made up number)

Ryan makes $1,500.00 a week
Brian makes $1,000.00 a week
Cameron makes $500.00

10% tax rate across the board

Ryan Pays $150
Brian pays $100
Cameron pays $50

leaving

Ryan $1350
Brian $900
Cameron $450

This does not let the Rich get Richer and the poor get poorer, The gross pay to net pay is STILL the same percentage base apart it hasnt grown or shrank ANY.

1 Reply

@rugonnacry,

good post rug. Its common sense that the poor in the richest country on earth would be better off than poor in less fortunate countries.

But then some people seem to lack common sense, go figure?

rugonnacry;36601 wrote:

As well they should be

0 Replies

@rugonnacry,

Excellent post RUG

I agree a flat tax system would be a much better way to go. Close all the business loop holes too. Have them pay that same flat tax on all profits. We'd be swimming in money in this country then.

rugonnacry;36605 wrote:

Children are the future yes? EVERYONE is resposible for childrens education. EVERYONE should pay school tax kids or not. I do not know any family member (My mom was adopted) that collects social security, by that logic should I be upset that I have to pay SS tax?

I dont know if what I am about to describve is the dreaded flat tax, but in my opinion, everyone REGARDLESS of income, should pay the same percentage of tax. Example.

(these are made up number)

Ryan makes $1,500.00 a week
Brian makes $1,000.00 a week
Cameron makes $500.00

10% tax rate across the board

Ryan Pays $150
Brian pays $100
Cameron pays $50

leaving

Ryan $1350
Brian $900
Cameron $450

This does not let the Rich get Richer and the poor get poorer, The gross pay to net pay is STILL the same percentage base apart it hasnt grown or shrank ANY.

0 Replies

@Silverchild79,

So many are against Flat Tax, I would like to know what those reasons are. as opposed to Rich folk and their tax lawyers getting them down to paying less than 2 %

1 Reply

@Silverchild79,

Aside of course from claims that the tax does not attach to dividends or interest. Everything gets taxed once, Interest on a bank account should be Taxed, a Financial move on your part that generated income, Tax is your FEE for being allowed to generate income simple enough... Stock dividends, same thing.

However Alimony and Child Support, should NOT be taxed, because those direct funds from the payor have already been taxed.

In my perfect system, everyone would pay the same taxes on all money earned, but GOv. is NOT allowed to double dip (IE child support)

1 Reply

@rugonnacry,

well one cannot answer this question for a certainty Rug.

But as far as i can tell most people do not use the brain God gave them to think. They are followers, sheep being led to the slaughter so to speak.

Somebody says it that they consider on their side so it must be true. They do not investigate and research right from wrong and common sense things for themselves. they just repeat what they have heard as though it were true. And often it makes no sense at all or is a out right lie.

rugonnacry;36638 wrote:

So many are against Flat Tax, I would like to know what those reasons are. as opposed to Rich folk and their tax lawyers getting them down to paying less than 2 %

0 Replies

@rugonnacry,

I agree completely with how you have laid out the way this should work.

I would only add that we may need some consumption taxes if there is a short fall to cover some obligations we have for awhile.:thumbup:

rugonnacry;36639 wrote:

Aside of course from claims that the tax does not attach to dividends or interest. Everything gets taxed once, Interest on a bank account should be Taxed, a Financial move on your part that generated income, Tax is your FEE for being allowed to generate income simple enough... Stock dividends, same thing.

However Alimony and Child Support, should NOT be taxed, because those direct funds from the payor have already been taxed.

In my perfect system, everyone would pay the same taxes on all money earned, but GOv. is NOT allowed to double dip (IE child support)

0 Replies

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