CLEAR EXPLANATION OF TAX CUTS......................... Sometimes
politicians, journalists and others exclaim; "It's just a tax cut for
the rich!" and it is just accepted to be fact, without questioning it
>> But what does that really mean?
>>
>> Just in case you are not completely clear on this
>> issue, the following might help. Let's put tax cuts in
>> terms everyone can understand.
>>
>> 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 beer 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. What about the other
>> six men, those paying the tab? 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 back out of the $20,"declared the sixth man. He
>> pointed to the tenth man," but he got $10 back!" "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 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 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, PhD
>> Professor of Economics
>> University of Georgia
politicians, journalists and others exclaim; "It's just a tax cut for
the rich!" and it is just accepted to be fact, without questioning it
>> But what does that really mean?
>>
>> Just in case you are not completely clear on this
>> issue, the following might help. Let's put tax cuts in
>> terms everyone can understand.
>>
>> 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 beer 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. What about the other
>> six men, those paying the tab? 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 back out of the $20,"declared the sixth man. He
>> pointed to the tenth man," but he got $10 back!" "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 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 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, PhD
>> Professor of Economics
>> University of Georgia
