Aces High Bulletin Board
General Forums => The O' Club => Topic started by: bustr on May 04, 2009, 10:24:10 AM
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http://www.e3gazette.com/2008/10/explaining-our-us-tax-system-with-beer.html
Explaining Our U.S. Tax System with Beer
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 beers 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 everybody'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 very 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
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So true. Right now, according to the IRS, the top 50% of wage earners in the US pay approximately 96% of the taxes. The top 10% pay something like 36% of the taxes. Something like a third (and growing) pay no federal income taxes at all. So naturally anything labeled a "tax cut" will always return more money to the wealthy, unless it is in fact a tax credit (a.k.a. redistribution of wealth). That's why I couldn't help but laugh when one of the candidates last year claimed he was going to give a tax cut to 95% of Americans. The math don't add up.
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This is far too simplistic to take seriously.
http://www.e3gazette.com/2008/10/explaining-our-us-tax-system-with-beer.html
Explaining Our U.S. Tax System with Beer
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 beers 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 everybody'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 very 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
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This is far too simplistic to take seriously.
You ever been hired by a poor man?
You ever enjoyed paying taxes while working for yourself?
You ever enjoyed paying taxes PERIOD?
If not, if I make more money and pay more taxes, I expect more back from tax brakes. After all I enjoyed expending the time and energy to earn that level of money in the first place.
You could do the tax and beer analogy with college grade point averages. You sound educated and nuanced.
At the end of every college undergrad year at all government funded institutions of higher education all of the 3.5-4.0 gpa students including yourself are dinged down to 3.0 to bring up as many students below them that can be upgraded to 3.0. The purpose of this is to insure a fair outcome and to fill as many seats as possible in the graduate and post graduate programs. The same process will be repeated concurently at the graduate and post graduate levels to maintain the fair outcome.
All students in the undergrad programs who cannot maintain a passing gpa will be issued an associate degree for showing up. All in the spirit of a fair outcome. All students who cannot maintain the gpa to stay in the schools at any level will have unlimited attempts to start over while students with 3.5-4.0 gpa will contiue to give up points to the lower gpa students to help move them forward.
What happens if the 3.5-4.0 gpa students transfer to privately funded colleges and universities?
It is a simple task to make things complex, it is complex task to make them simple. OR Your complex ceiling is another mans simple floor.
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Those poor rich people.
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Those poor rich people.
Yeah, I know, :cry
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Read a little bit of Keynes and you'll understand that the justification for the inequity you describe is the goal of full employment.
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Those poor rich people.
Yup, where would you be without them. Unemployed ?
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Read a little bit of Keynes and you'll understand that the justification for the inequity you describe is the goal of full employment.
Austrian methods shoots it down!
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Yup, where would you be without them. Unemployed ?
Where would they be without us?
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Where would they be without us?
retired.
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Those poor rich people.
The point of the example was not to engender sympathy for the rich man, but rather to warn against beating the drum of class warefare to loudly. Likewise, the point of the constitution is not to insure equal outcomes, but equal opportunity.
As for
Read a little bit of Keynes and you'll understand that the justification for the inequity you describe is the goal of full employment.
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".
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See Rule #14
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See Rule #14
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See Rule #14
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U.S. Tax code in human form....
(http://i411.photobucket.com/albums/pp193/dmbear/funny-pictures202.jpg)
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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.
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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? :huh OooooK. I guess that is why no rich guy has ever become poor, eh? :rolleyes:
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.
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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
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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.
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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
(http://i411.photobucket.com/albums/pp193/dmbear/funny-pictures202.jpg)
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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.
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Yup, where would you be without them. Unemployed ?
No, that's not the right question... Why would they want that second yatch?
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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?
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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.
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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 :uhoh 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.
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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.
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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. :)
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See Rule #14
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I will copulate and let this current administration take care of me
:rofl
Don't you mean "capitulate?" Or, maybe not?! :lol
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See Rule #14
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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.
and why is this the rich mans fault ? Is he responsible for the poor man's well being even with the amount of bad choices and his lack of self assertiveness ? I thought he was just responsible for the poor mans employment?
What amazes me is how can immigrants who have nothing come into this country, work hard and become successful when some homegrown people can't. This country offers anyone from anywhere to be all they want to be and in some cases all they don't want to be.
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See Rule #4
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See Rule #4
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There is no point in trying to let this thread continue.