As Charlie Rangel, the heir apparent to the House Ways and Means Committee, is on the record as saying there is nothing in President Bush's tax policy that he likes and he doesn't intend to support making any of it permanent, as the President has requested, it is probably time to revisit the following.
This is an e-mail that circulates around the country from time to time and has been attributed to various Professors of Economics. When Snopes checked it out, however, the professors denied they were the originators of the analogy, but all had used it as a teaching tool in their classes.
So to those who continue to complain that the GWB tax policy only favors the rich:
Subject: Tax Analogy (a rerun from my morning e-mail)
Sometimes politicians, journalists and others 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 a dinner special for ten and the bill 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. They 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 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 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
important. At $59 short, 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 somewhere that the atmosphere is friendlier.
http://www.snopes.com/business/taxes/howtaxes.asp