Excellent Story on how Taxes Work

[Arvon]

Got it from the Urban Ledgend site.

How Taxes Work . . .

This is a VERY simple way to understand the tax laws. Read on -- it does make you think!!

Let's put tax cuts in terms everyone can understand. Suppose that every 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 something like 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, and the tenth man -- the richest -- would pay $59.

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 (in tax language a tax cut).

"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 $80.00.

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 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 paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of his earlier $59. 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 who pointed to the tenth. "But he got $7!"

"Yeah, that's right," exclaimed the fifth man, "I only saved a dollar, too . . . It's unfair that he got seven times more than me!".

"That's true!" shouted the seventh man, "why should he get $7 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 he 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, a little late what was very important. They were FIFTY-TWO DOLLARS short of paying the bill! Imagine that!

And that, boys and girls, journalists and college instructors, is how the 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.

Where would that leave the rest? Unfortunately, most taxing authorities anywhere cannot seem to grasp this rather straightforward logic!

[Paladin2000]

Actually in reality, it is the middle class that suffers the most. The poor would not be eligible to pay tax while the rich would hire good accountants to get away with the tax (as much as possible), leaving the middle class people to pay the tax up to their nose.

[ 01-11-2003, 04:08 PM: Message edited by: Paladin2000 ]

Originally posted by Paladin2000: Actually in reality, it is the middle class that suffers the most. The poor would not be eligible to pay tax while the rich would hire good accountants to get away with the tax (as much as possible), leaving the middle class people to pay the tax up to their nose.

Actually Paladin, your logic is faulty.
The so called "RICH" in this country pay the vast majority of all taxes paid. THe rich guy finding a good accountant is still only able to pay what he is legally allowed to pay, in other words...he isn't getting soaked by OVER paying his taxes and is instead paying what the law says he should. Now if the accountant in question breaks the law and takes liberties when preparing this guys taxes, he should hang with all other criminals,

The story posted is EXACTLY how the system works today and is correct in its depiction. Timber Loftis points out the Corporations are takng their profits off shore to evade taxes...and I assert they are just playing the part of the manin the story who got beat up. If you are unfair enough to the one footing the bill, he is gonna take his toys (and cash) and go home. For example...double taxation on dividends...was never fair and highly shadey at best. Time to make the tax system "FAIR" and quit punishing people who work hard and succeed.

[Downunda]

I agree with the MagiK MaN and Mr Arvon. I'm not rich and from what I know about rich people is that they work alot harder (Generalisation) and have alot more debt including (in New Zealand at least) extremely high student loans.
Why punish someone with absurdly high tax rates because they worked harder and made sacrifices along the way.
I'm not saying that they should get taxed less, just that people be a bit less jealous maybe. [img]smile.gif[/img]

On a slightly different topic, in the news yesterday there was an article referring to a single mother with one child. She was earning $40,000nz (about $20,000us) a year. She doesn't work, she is on welfare. I work full time, I earn half that (plus commission ) I pay $100 a week in taxes. It would take 8 full time workers like me to "look after" this one mother and her child.
This is an extreme case but it doesn't seem right to me.

[Paladin2000]

Magik,

This is not my theory nor logic. This is the impression that I got after reading Rober T. Kiyosaki(?)'s book, titled Rich Dad, Poor Dad. He didn't give a very detailed explaination but he still does a good job of conveying the message in a layman's term.

I think what he was trying to say was the rich does pays more tax in terms of dollar and cents but in percentage of the their total income, they are actually paying less because of the tax loop hole.

[ 01-12-2003, 11:07 PM: Message edited by: Paladin2000 ]

[Harkoliar]

there is a exception to that tax logic (only here in the PHilippines).. and it is called tax-evasion. that is one of the biggest problem here and its not improving the country

Originally posted by Paladin2000: Magik, This is not my theory nor logic. This is the impression that I got after reading Rober T. Kiyosaki(?)'s book, titled Rich Dad, Poor Dad. He didn't give a very detailed explaination but he still does a good job of conveying the message in a layman's term. I think what he was trying to say was the rich does pays more tax in terms of dollar and cents but in percentage of the their total income, they are actually paying less because of the tax loop hole.

that makes no sense. If the "Rich" are taxed at a higher "PERCENTAGE" rate, then they cannot be paying less of a percentage of their total income [img]smile.gif[/img] thats like an oxymoron The problem is, there are certain people in our media and government who want to promote class envy and strife over taxes. Of course a tax break benefits the "rich" if you define rich as any one who actually pays into the tax system. Anyone making under 20-25k a year in the US not only do not pay taxes, but qualify for earned income credits...which is in simpler terms...they get more money back than they paid in, because the government gives them someone elses money.

Someone earlier claimed that earned income credits didn't work the same any more, but this years tax code says it works the way I remember it.

The poor don't get money back from tax breaks..because the poor don't actually pay income taxes, but they do pay payroll taxes which contributes to their medical care, their social security and other such things. The "rich" do benefit but usualy this helps everyone, because the "rich" are the ones who own businesses and who can hire more people if they have more money to grow their business. Oh and should anyone wonder...when talking about "rich" usually we are talkingcombined incomes of $100,000 or greater. Sounds like a lot..untill you realize the cost of living in some places. Well rant mode is off now...

hope I explained my point well enough.

[ 01-13-2003, 09:07 AM: Message edited by: MagiK ]

[Timber Loftis]

What this story misses is that the 10th man:
Has $5 worth of coupons a buddy passed him;
Started a "Lunch Buddy" meal company and will claim everything as a business expense, thereby avoiding upwards of 50% of what he does pay;
Bought stock in the restaurant and is actually getting a % of the profits off the meal;
Depreciates the dinnerware over an amortized period;
Has a big-spender discount with the restaurant, which gives him grants to bring in guys # 1-9; and
Owns the bank holding the mortgages on guys # 4-7, employs guys # 1-3, and plays golf on Fridays with # 8-9 while # 1-7 are working, and # 8 and 9 are into him for 6 dinners apiece.

So, who really pays - the restaurant, that's who. Take away tax credits, tax shelters, credit floors, credit ceilings, deductions, depreciations, etc. and I'll support your argument. I simply know and work for too many # 10s to believe the BS that they *truly pay* their share. Hogwash.

[Sir Kenyth]

Let's not forget that income tax is only one of the many taxes and fees paid in life. Income tax DOES hit the richest the hardest percentage wise. On the other hand, sales tax hits the poorest the hardest percentage wise. Property tax hits the middle class hardest percentage wise. It has been argued that comparing these taxes is like comparing apples and oranges. I don't think so. The total impact of taxes on the income should be considered, regardless of the source. Separating and catagorizing is how you get distorted views.