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Posts Tagged ‘tax cuts for the rich’

A Beer Story: Tax Cuts for the Wealthy

Posted by Tony Listi on March 21, 2008

The wealthy pay most of the taxes, so it should be no surprised that they get a larger percentage of the tax cut total back!  It is only fair. 

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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. 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 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

Posted in American Culture, Budget, Spending, and Taxes, Economics, Government and Politics, Poverty | Tagged: , , , , , , , , , | 27 Comments »

About That Middle-Class Squeeze…

Posted by Tony Listi on March 5, 2008

http://www.ibdeditorials.com/IBDArticles.aspx?id=289527073199247 

By INVESTOR’S BUSINESS DAILY | Posted Tuesday, March 04, 2008 4:20 PM PT

Democrats seem unable to stop themselves from promoting higher taxes for the wealthy and lower taxes for the poor. But if the public knew the facts, their rhetoric would have no resonance.

The poor in America pay virtually no taxes at the federal level. What taxes they do pay have been falling for decades. The total effective federal tax rate — for income, payroll and excise taxes — for the bottom 20% of U.S. households was halved from 1979 to 2005.

From 2000, the year before President Bush took office, to 2005, after his tax cuts had fully kicked in, their total effective federal tax rate fell by nearly a third.

At the other end of the scale, the total effective federal tax rate for the top quintile fell by a mere 7.3% from 1979 to 2005 and by 8.9% from 2000 to 2005. If you look at households with children, the difference is even more stark — for the top incomes, taxes have risen, while those at the bottom saw a whopping 85.7% cut.


View larger image

Don’t think that the poor’s tax burden has been passed to the average American family. The total effective federal tax rate for the middle quintile has fallen faster than the top two quintiles.

As the chart above shows, the effective tax rate for middle-class Americans has fallen since the late 1970s. While that was happening, the median after-tax household income jumped by more than a quarter.

Taxes down, incomes up. No question — we’re all doing better.

Despite this news, readily available, the two remaining Democratic presidential candidates talk as if the rich are the only group getting tax breaks, while support from Washington for the poor has fallen and the middle class is being crushed out of existence.

Last month in Austin, for instance, Sen. Barack Obama insisted during a debate that “we have to end the Bush tax cuts to the wealthy and to provide tax breaks to middle-class Americans and working Americans who need them.”

When it was Sen. Hillary Clinton’s turn, she also pulled out the class-envy card:

“We are going to rid the tax code of these loopholes and giveaways. . . . The wealthy and the well-connected have had a president the last seven years, and I think it’s time that the rest of America had a president to work for you every single day.”

Apparently the Illinois senator is omniscient, because he has claimed that “people didn’t need” the Bush tax cuts and “they weren’t even asking for them.” He has made political points with his argument that “middle-class families are getting squeezed.”

Clearly Obama sees it as his duty to make sure Washington gets a bigger cut of Americans’ wealth — as does Clinton, who famously warned, in a statement with strong Marxist overtones, that “we’re going to take things away from you on behalf of the common good.”

What more do the Democrats want? Under the Bush tax cuts, the top 1% paid 39.4% of federal income taxes in 2005, up from 37.4% in 2000 and 30.3% in 1995, when the Clinton administration was in charge and had pushed a tax hike through a Democratic Congress.

As for the bottom 50%, they paid 3.1% of federal income taxes in 2005, down from 3.9% in 2000 and 4.6% in 1995. You can see the decline in tax rates under Bush for yourself (smaller chart, above).

That Democrats are stirring jealousy from the stump is nothing new. The candidates know their audience. And they know what their audience doesn’t — that the Bush tax cuts have been good for every taxpayer in the country, not just the rich.

Further, the Democrats know that if more voters learn the truth about taxes and the economy, then their party would be in deep trouble. Better, we suppose, to keep them ignorant and agitated.

Posted in Budget, Spending, and Taxes, Government and Politics | Tagged: , , , , , , | Leave a Comment »