Explaining our U.S. Tax System with Beer

[DMBEAR]

U.S. Tax code in human form....

[Anaxogoras]

I must admit that I fail to see how redistribution of wealth from those that create it to those who did not earn it contributes to full employment.  This beer example is indeed simple when it compared to the million pages of the US tax code; however, it suffices to get the point across.  If you're going to tax "progressively", than any tax cuts should by all definitions of fairness be returned "progressively".

The greater your income, the smaller proportion you spend.  Spending creates demand for goods, which causes investment (different from speculation).  Investment creates jobs.  Give a rich man $1000 and he will either horde most of it or use it to speculate; a poor man spends nearly the entire sum on necessities.

[E25280]

The greater your income, the smaller proportion you spend.  Spending creates demand for goods, which causes investment (different from speculation).  Investment creates jobs.  Give a rich man $1000 and he will either horde most of it or use it to speculate; a poor man spends nearly the entire sum on necessities.

What is the difference between "speculation" and "investment?"  Answer is -- only the level of risk.  There is no difference otherwise.  Both create the opportunity for someone to start or run a business.  That is, unless you have some super-secret definition of "speculate" that no one else has.

Rich people don't spend money?    OooooK.  I guess that is why no rich guy has ever become poor, eh?   

If a person making $100,000 per year spends 50% of his money every year and a person making $10,000 spends 100% of it every year, the rich person is still creating more economic activity than the poor person despite the lower "proportion."  Your logic fails you.

[rkanjl]

The greater your income, the smaller proportion you spend.  Spending creates demand for goods, which causes investment (different from speculation).  Investment creates jobs.  Give a rich man $1000 and he will either horde most of it or use it to speculate; a poor man spends nearly the entire sum on necessities.

Or, perhaps he'll start a company and create jobs.  It's like Shuffler pointed out, when you work hard to get ahead and the government takes the fruit of your labors and passes it out to those who do not contribute, why would you continue be productive?  You would eventually decide to do enough to get by and let the next go getter provide for you.  Eventually, no one pulls the weight anymore and the system collapses.  

It's kind of like Hawaaii's child medical insurance.  The State provided "free" medical insurance to every child who's parents couldn't afford to pay for thier own.  Eventually those who were paying for thier own insurance and for everyone elses through taxes decided they wanted "free" insurance as well.  Everyone dropped thier coverage and signed up for the States and the program went belly up in a year.

Any of you socialists out there want to support me?  I'll gladly quit my job and take your money.  Let's "share"!

rkanjl

[bustr]

In the latter 3rd of the 20Th century LBJ started the Great Society which perpetuated generations of welfare citizens as a permenant sub culture. The Military Industrial complex during the cold war could afford them under the Keynes style of economy in force. Based on Keynes theory the government expanded proportionaly to service ever expanding ranks of citizens joining the ranks of the poor and disadvantaged. The poor and disadvantaged kept breeding the next genrations of poor and disadvantaged. By the time of Carter a tipping point was reached and Reagan introduced a Hayekian style of economy which ran to its extream and failed in 2008. During this Hayekian economic period many states began disensentavising being on wellfare forceing the poor back on to the work force. By the end of this Hayekian cycle, greed overcame any checks in the system. This is an example of how fast economic models can be implemented and run their course as the speed of technology and communication increases the ability of groups to outstrip the previous generations economic calculation problem.

The last 40 years have been the longest time in american history that the church or other charity organisations did not take care of the poor, or the poor became unwilling to do the jobs ilegal aliens have been doing increasingly in the last 30 years. Full employment is not possible if a central government redistributes wealth in the form of housing, food, medical care and general living subsidies. Companies\The Rich will increasingly take the vehicals of wealth creation overseas to stop being sucked dry by the vampire called government in the name of wealth redistribution. At the same time in a global economy the rich will naturaly look for cheaper sources of labor to increase their own profit which creates a redistribution of the wealth creation vehical and its attendant benifits away from their home country.

20Th century models will not work in the 21st century as seen by the global economic downturn in 2008. In the simplest form of looking at it, we failed at both ends of the economic philosophy spectrum of Keynes and Hayek from the 1950's to 2008 because of a failure of human morality. Not because the systems were inheritly bad. Both men had said the lack of morality would kill their economic systems. In the 21st century we either get our morality back or figure out how to make a world economy succeed for everyone based on imorality.

[DMBEAR]

The greater your income, the smaller proportion you spend.  Spending creates demand for goods, which causes investment (different from speculation).  Investment creates jobs.  Give a rich man $1000 and he will either horde most of it or use it to speculate; a poor man spends nearly the entire sum on necessities.

You mean necessities like cigarettes which are bought at a higher rate by the low income bracket?

sorry, my post was too early...i think your

[Anaxogoras]

It's not "my" logic.  This is Econ 101.

$1000 for one rich guy, or $100 each for 10 poor jerks: that the latter returns more money to the economy is axiomatic.  If you don't accept that then argue it with an Econ professor.

[Marauding Conan]

Yup, where would you be without them. Unemployed ?

No, that's not the right question... Why would they want that second yatch?

[Marauding Conan]

Here is the problem with defending the rich man. All those banks that nearly collapsed are paid for by taxes. You will be paying higher taxes for the next 10-20 years to pay it off, while the rich guys who created this mess are retiring with multi-million dollars, pounds or euros... Do you see the government offering you a very large retirement package?

Face it, all the discussion about beer prices and comparison with the US tax system is just a smoke screen. The average joe pays a larger proportion of his income while getting no influence on the system (rent, taxes, food, clothes, then he might be able to buy that beer). A rich person can easy afford to pay higher taxes, yet the focus of the discussion is about would it be fair to charge him taxes? well, who cares if he can't afford that second yatch in the Bahamas... Do you still want to talk about beer?

[Delirium]

All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A. After the first test the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. But, as the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too; so they studied little. The second test average was a D! No one was happy. When the 3rd test rolled around the average was an F.

I would of been hiring a lawyer after a visit to the Dean. If a professor thinks for a minute he could use my tuition money as a tool to educate a class, he would be sadly mistaken.

[DMBEAR]

It's not "my" logic.  This is Econ 101.

$1000 for one rich guy, or $100 each for 10 poor jerks: that the latter returns more money to the economy is axiomatic.  If you don't accept that then argue it with an Econ professor.

I'm not a professor, and I only can give you my own views.

You are in Indiana.  My Father co-founded a company and opened a plant in Bloomington in 1994 in part because of tax breaks he received from the government.  The main reason was that a group of experienced workers in the industry had been laid off when my father's former employer sold and closed it.  My dad was in his 50's and the new company had no place for him.  He knew that was coming.  Out of necessity, he came up with the idea to open a plant there.  He knew the people were great, and that they were great workers too.  The only problem is he was jobless, had a family, including a punk teenager  and his funds were running out.

He flew across the country to bankers proposing this idea.  He used his will and trust in Windmoeller & Hoelscher Corp, a German company to deliver a his most important piece of equipment in time to startup on time.  The company was funded from investors that were convinced of a profit. It never would have happened w/out the tax breaks that the company was offered to open the plant there.

Some people believe that if you help the people who are trying to create work, then you will actually be helping people who are looking for work.  I agree.

Some people say, "How can you help the rich?" and here's an example they would often cite...

Another plant in Bloomington is the GE Refrigerator plant.

Around 10 years ago I believe the GE began moving jobs to Mexico.  Maybe because they were unwilling to pay the wages the unions want, or maybe it is because the Unions want to much. Could be the high costs of materials, or the lack of demand of their products.  I honestly don't know.  The rumors of it closing have been swirling for years.  You can look it up on-line.

It seems like an easy argument for either side of the argument.  On one hand you can say corporate greed, on the other, the workers needs could make profit an impossibility.

What I do know is that under my Father's control of the company he refused to have a Union.  Workers were rewarded by performance, and there was a quarterly profit sharing to all employees.  The company was a success. The tax breaks helped them get started and eventually after a few years there was a profit.    I saw that model work.  That's what I know.

Eventually, the board of directors voted to sell the company to a competetor, my Dad's vote being the only nay.
One stipulation my dad fought hard for is that the buyer would agree to keep the plant the in Bloomington for the workers.  They did.

Of course there is Greed.  But to assume all are greedy and that we should squeeze the people like my father who are not is dangerous.  You talk about a wealthy man hording money and that frustrates me for the fact that I know many that don't.  They'll just go where the can do what they do best...make a good life for as many people as they can including themselves.  I'd like to keep that place here, in the U.S.

Let your professor use this for toilet paper...some of it might rub off.

I hope anyone interested in business, or lack faith in others at a time like this would check out the following link.  http://pffc-online.com/mag/paper_independent_packaging_restart/

I couldn't be any more proud of my father.  He passed away this last December.

[bustr]

The Beer model is simplistic yes. But it gets to the heart of the choices human beings make in good faith to accomplish a common goal. When the dynamic was changed so that members of the group were faced with a windfall, the majority agreed that the windfall had no bearing on the previous verbal contract to pay the Beer bill. Only the fact of seemingly free money mattered. After all the unexpected windfall was never part of the original agreement. In which case 9 of the 10 men saw the 20% returned as an equal share to all. Not as a proportion of their original agreed upon amounts. The tenth man who agreed to pay more than half of the original beer bill chose to terminate his association with the 9 because they chose not to value his contribution to the group endevor. They chose greed over morality which destroyed the enjoyment 10 men were having drinking beer together with 4 never having to pay a dime.

Some of you have taken part in betting by a proportion ventured for a proportional return of a peice of a pot. So if you bet $5 on an outcome versus another betting $1000 on the same outcome, do you expect to receive the same payout as the $1000 player? You have not risked near as much as the $1000 player. Now if you were the $1000 player and upon winning you were told a portion of your expected winnings would be redistributed to the $5 players and losers, I suspect knives and cutting throats would dominate the rest of the discussion. The bookie would need a small army of enforcers to get away with that kind of monitairy redistribution. Eventualy the big money players would find another game to spend their money on leaving the bookie to abuse and squeese the small fry like yourself to make up his losses.

Most companies and persons of wealth shealter their money because governments act like bookies with armys of thugs. The government will get its money, even if it has to squeese it out of the 95% of us who earn less than $250,000 a year. Being rich in any western country means you have learned how to protect your wealth from the government no matter your ideology or party affiliation. At tax time governments don't care if you are $2M a year Obama or dirt poor broke Mother Theresa. The IRSBorg will assimilate that part of your wealth they deem is theirs. The Beer model shows how easy it is to manipulate class envy and enact income redistrabution by pandering to the personal lazyness of a majority of humans who will never take the time to understand the basics of how income taxes work and simple immoral greed.

Immoral greed is how economic and governmental systems eventualy fail.
 

[Anaxogoras]

assi,

I'm glad things worked out for your father.  Profit-sharing with employees is great for motivation.  So far as I know, tax breaks for entrepreneurship are entirely consistent with progressive taxation.  Moreover, reinvesting profits into expanding a business to meet market demand, i.e. not hording the money, is also encouraged by our tax system.  Remember, it's all about employment.  The stagnant labor pools of the 19th century, followed by the shock of the great depression, and the political instability that followed, made western governments willing to listen to anyone who said they could cure unemployment.  That man was Keynes. His remedies were motivated by a concern for political stability, not a desire for utopian bullcrap.  Like Bismark's imperial Germany, the idea is to maintain high levels of employment to protect capitalism and the stake-holding classes from the threat of great throngs of the unemployed.

As for plants moving overseas, I feel less confident in having a strong opinion about it or in saying what should happen.  I don't like it, but I believe in open markets and hope that we can retrain displaced workers for new careers.  In the 1960's, the problem was that job growth primarily occurred in professions that required lots of education or extensive training, i.e. good-paying jobs.  Today, job growth is in low-skill, low-paying jobs.  The rapid advance of technology improves per-capita output which only makes the problem worse.

Btw, I'm also a fan of Indiana state taxes.  My property taxes are capped at 1%, which made buying a home affordable.

[BigPlay]

See Rule #14

[Anaxogoras]

I will copulate and let this current administration take care of me

Don't you mean "capitulate?"  Or, maybe not?!