Our Tax Code Explained!

The author is unknown, but it has been attributed to various different sources, some of whom have disavowed writing it.

When explained like this, it is much easier to understand our current Tax code.

Taxing the People:



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. Understand, that just like government services that our taxes pay for, each of the ten benefited equally, that is, they ate a dinner.

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,

For a total of $100

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:

*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... The least proportionate savings) Each of the six paying customers 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!"

As a consequence, the first 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 anymore. In fact, they might start eating overseas where the atmosphere is somewhat friendlier.

Since no one seems willing to assume authorship, I don't think we can concern ourselves with copyright concerns. Considering Dr. Kamerschen's wishes to distance himself from it, it would be more fair to admit that he wasn't the author of it.

You can find the story and it's rather extensive history on Snopes.

Interesting!

I searched Snopes, but must not have used the right terms to pull it up. Thanks Empath.

It's obviously been around a awhile.

I've corrected my original post, pending Snopes coming up with better info.

Bill

Hmm. I think this is a very exaggerated oversimplification. it doesn't take into account the ways in which people with more money can shelter that wealth from being taxed. There are plenty of new stories that cover this since tax records are public.

I agree we should reward those successful wealthy that build the economy and therefore do things like pay more taxes, create jobs, etc. as a result of their success, but let's not forget there are plenty of examples of those that seek to "cheat" the system and not pay their fare share.

I think one of the best things we could do is just have an easy understandable flat tax, and perhaps raise sales (goods & services) tax and have no exceptions. That would seem far more fair. I buy a Yugo and pay a small tax. You buy a Ferrari and pay more. You contribution is then related to your consumption.

Right now if it weren't for tax software I'm sure I'd have to pay to have my taxes done. In essence I already am by having to buy commercial software to make sure what I'm paying is accurate and fair to me the the govt. Something is just wrongs about havign to pay to assure accuracy and fairness.

A consumption tax would be, and has been, fought against by every major manufacturer and builder.

A flat income tax would be more fair, but won't happen because the middle class is against it. We seem to like the idea that those that make more money pay more taxes.

It's true that some wealthy avoid taxation, but look at the statistics and it becomes pretty apparent that the top 10% in income pay A LOT more than 10% of the taxes paid!

Yes, the story is simplistic, but it is illustrative of the problems our current tax system creates.

Bill

and in fighting the tax breaks that help the rich the most, those less than rich only hurt themselves. I recently learned about death and taxes here in my own state. Did you know that in most states you dont actually share what you own with your spouse? If I or my wife dies the remaining person would have to sell the house because I would all of a sudden owe taxes on her half of the house as it's ownership shifts to me. What are the taxes on a sudden windfall of a couple of hundred thou? I'll have to sell the place to pay the taxes on the place. Like most taxes, the rich will be able to afford to pay that, and the rest of us will loose our homes. THough if you repeal it the dorks who fight such things will tell you how much money that the rich wont have to pay then, except that they wont mention that you'll all of a sudden owe tens of thousands to the government.

I think the story is very illustrative.

James,

It really depends on the state. As my lawyer explains it anyway, in community property states, you are coowners and the surviving spouse inherits without taxes. If both die, though, the children may have those taxes to pay.

In non-community property states, the results are all over the place, with some states having an exclusion for spouses, some none, etc. It is at least part of the reason trusts are so popular in some states and not in others.

Having spent the first half of my professional life thus far working in estate planning and insurance, the simplest way to handle it is have sufficient life insurance to handle the taxes, since life insurance proceeds are tax free, but that does require some planning and foresight!

Bill

I think your point is right on James. If your state really does have one of those crazy laws where a surviving spouse would owe taxes against a house on the death of the other, then you can bet that the multi-millionaires will all have found ways to get around that through trusts or some other manner not easily available to the rest of us to shelter themselves from that.

That's exactly my point. If you've got enough $$$$ to afford highly skilled tax attorney's then you can avoid getting hit my many of the taxes the rest of us can't wiggle out of. To someone like Bill gates paying even $50K to avoid taxes would payoff of $50K to him is chump change. $50K to me is like 1/4 of what I still owe on my house so that kind of tax avoidance is out of my reach, but well within the reach of someone with more money.

Like I said...flat tax, luxury tax, and consumption based taxes while not popular seem more fair. You pay to play. Yeah the yacht makers would scream if there was a luxury tax on their goods but I doubt a little tax woudl stop the likes of Paul Allen, Steve jobs, Warren Buffet, etc. etc. etc. from buys a new huge yacht if they really wanted one.

What happens with the luxury tax is that the really wealthy find their way around it by having old things rebuilt. Instead of buying that new Ferrari, they have their old Ferrari completely rebuilt, with a ground up restoration. They keep driving that 5 year old Silver Cloud instead of antying up for a new one.

Because they can afford the maintenance on it at a level that normal people can't, they avoid the tax still.

You and I, on the other hand, still end up paying it, because we can't afford to maintain our vehicles at "Like New" levels and still have to buy new cars eventually.

When you think of all those yacht makers who are screaming, think of all the middle class workers in their building yards who have no jobs if the yacht maker closes it's doors. The same goes for Cadillac and Lincoln. For that matter, most of those yacht makers have already gone overseas anyway.

Flat income taxes make sense, but, like I said, the middle class voters don't like them.

Bill

Thanks, Powernoodle. Couldn't control yourself, could you? Thread closed.

I've reopened the thread, and decided instead to remove the offending post.

There is no problem with discussing the problems with taxation. There is a problem though when the discussion turns to faulting political groups, or being unsatisfied with the level of "evil" associated with the name of their party, redefining a party or member thereof as being in reality a member of a more sinister or less respected group. What then happens is the ones that might identify with such a political attack feels they too should be able to demonstrate a lack of respect for others. What we end up with is a political argument instead of a discussion of an issue.

If any others post attacks on people or their political affiliation, I'll likely remove those too; at least until I get tired of doing so and simply close the thread again.

The little essay posted as the start of the thread was just a cute little interesting make-believe story. Don't respond as if it's real. Your fellow member had nothing to do with it, nor did their political affiliation.

Thanks Empath!

I'm not sure that anything any party says or does reflects how any of us actually feel!

I generally vote conservatively when it comes to taxation issues, and yet I've seen the "conservative" party make bad decisions too!

I think the system itself is inefficient and messed up, probably caused by the "too many cooks spoil the soup" issue!

Anytime the people who enforce the laws don't, and won't, give advice that legally can be used to challenge an interpretation of those laws, you know that the system is flawed.

Call the IRS for a question, and the first thing you are told is that "the opinions and advice given on this call cannot be used to defend yourself if you are found to be in violation of the tax code!"

If they can't get it right, what chance do we have?

Bill

bitslammer said:

..... you can bet that the multi-millionaires will all have found ways to get around that through trusts or some other manner not easily available to the rest of us to shelter themselves from that.

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That's the problem when you set up a "punative" tax system. When you try to punish those making "too much money" with excessive & targeted taxes, they are just going to stop doing what gets them punished and start doing something else. The end result is you miss the target completely and you have less total tax $$$ going to the government even though they have increased taxes to get more money.

bitslammer said:

..... $50K to me is like 1/4 of what I still owe on my house so that kind of tax avoidance is out of my reach, but well within the reach of someone with more money.

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You got me beat, $50K IS my house.

bitslammer said:

Like I said...flat tax, luxury tax, and consumption based taxes while not popular seem more fair. You pay to play. Yeah the yacht makers would scream if there was a luxury tax on their goods but I doubt a little tax woudl stop the likes of Paul Allen, Steve jobs, Warren Buffet, etc. etc. etc. from buys a new huge yacht if they really wanted one.

Click to expand...

The luxury tax was tried several years ago and the end result was that the rich DID stop buying the taxed luxury items. A whole lot of blue collar workers in these industries ended up loosing their jobs and still there was no increase in revenues to the government. Now, a flat tax or a consumption based tax would be a good idea. Personally, I favor the consuption based tax since it not only eliminates all tax avoidance through deductions, but it also starts collecting taxes on the underground and criminal (unreported) economies in addition to encouraging savings. Money doesn't do you any good unless you spend it; and with a consumption tax, if you spend it the government gets it's fair share.