How taxes work – I did not make this up. Really, this isn’t original.

I am presenting our system of taxes in this way because I believe it is very plainly illustrated.  It has been in email circulation for years.  The original author is unknown.  The follow excerpt is from America’s Financial Demise: Approaching the Point of No Return by Ethan Pope.

“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 man would pay $1.

The sixth man would pay $3.

Seventh man would pay $7.

Eighth man would pay $12.

Ninth man would pay $18.

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 beer by $20.”

Drinks for ten now cost just $8.

Because the group still wanted to pay their bill the way we pay our taxes, the first four men were unaffected.  They still drank 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 amount from everybody’s share, the fifth man and the sixth man would end up being paid to drink their beer.  So, the owner suggested that it would be fair to reduce each man’s bill by roughly the same percentage, and he proceeded to work out the amounts each should pay.

Fifth man now also paid nothing (100% or $1 savings).

Sixth man now paid $2 instead of 3 (33% savings).

Seventh man now paid $5 instead of $7 (28% savings).

Eighth man now paid $9 instead of $12 (35% savings).

Ninth man now paid $14 instead of $18 (22% savings).

Tenth man now paid $49 instead of $59 (16% savings).

Each of he six men was better off than before; but once they were outside the restaurant, they began to compare their savings.

“I only got $1 out of the $20 discount,” 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 did!”

“That’s true!” shouted the seventh man.  “Why should he get $10 back when I got only $2?  The wealthy get all the breaks!”

“What a minute,” yelled the first four men in unison.  “We didn’t get antyhing 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 important.  They didn’t have enough money between them to even pay half the bill!

And that, ladies and gentlemen, journalists, and college-professors, is how our tax system works.  The people who pay the highest taxes get most benefit from a tax reduction – because they paid the most tax in the first place.  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.”

Don’t be confused by political rhetoric which leads you to believe the rich do not pay their share.  Those who are not “paying their fair share” are, in large part, the 32.5% of all income tax filers who paying nothing in taxes.  In fact, if you consider my point of view specifically, then you would see I speak from experience.  However, I do not write on behalf of the rich.

Until 2 months ago I was been a student working part time throughout the year,  never earning significant income in the six years of undergraduate and graduate school, and I was lacking motivation to do so.  I am the poor American who has received tax refunds each year.  I am one of the first four guys at the bar.  Yet, I know I won’t be for long.  If and when the government raises taxes for the rich, they will find it won’t be a significant bite out of our national debt.  They will need to tax another group of Americans.  Who will they tax next?  That’s right.  Don’t be one of the many who will ask: where did the tax refunds go?

TJ

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