I have heard this explanation of taxes and how they work before, but I think it is a very good way to simply explain this to people in a straight forward easy to understand story.
Thanks to my brother-in-law for sending this to me written out. Here is the story...
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. 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 eachman'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
For those who understand, no explanation is needed. For those who do not understand, no explanation is possible.
...This is such a great illustration of how our tax system works, and how some exploit "tax cuts for the rich." I could say more, but I will let this story speak for itself.
Thanks again to my brother-in-law for sending this to me, and to David Kamerschen, Ph.D. for writing it in the first place.
Showing posts with label taxes. Show all posts
Showing posts with label taxes. Show all posts
Friday, October 17, 2008
Wednesday, October 15, 2008
One big reason Obama Scares me
There are many reasons to vote against Barrack Obama for President. You can go down the whole judgement path with his associations with questionable characters, but if you want to stick to the issues here is a big one.
While in Toledo recently, a plumber raised the issue with Obama that under Obama's economic plan, the plumber's taxes would go up. Listen to the clip below which features Obama's answer. Listen carefully. Listen twice if you need to, I'll wait.
Okay, are the hairs on the back of your neck standing up? This has to be one of the scariest answers to a tax question I have ever heard from a Presidential candidate. For those who don't understand the answer, let me spell it out as clearly as I can. This is pure Socialism. Obama is talking about redistribution of wealth here. He believes that he knows better than you do how to use your money.
If you have a friend or relative that thinks Obama has a good economic plan try explaining it to them this way.
Let's imagine that Obama has proposed a new tax plan that he is running through congress. Let's also say he is calling it The citizen helps plan for America. In this plan, the government will decide who owes money and who needs help. Instead of you paying your taxes to the government (remember, even if you got a refund, you still probably paid some amount), your neighbor sends you a bill that says you have to pay them directly. It could be $2000.00 a year, or $500.00 a quarter, but either way, you are legally bound to pay your neighbor the money because the government decided that you make too much and your neighbor doesn't make enough. If you don't cut your neighbor a check and they complain, you will be held accountable by the government. Maybe you won't be able to register your car, or you get a fine, or something similar.
Do you think this idea would fly with the American people? No way, you're crazy, people would never agree to this idea would they?
The only difference between my example above and Obama's plan is the middle man. Yes, under his plan, you pay the government, they hold the money for awhile, and then they decide who to cut the checks to.
So, you think I'm exaggerating? You think his plan doesn't do this? Obama keeps saying that 95% of Americans won't pay any additional taxes. He also claims that most of the middle class will get a tax cut. Wait, lets look at his tax plan a little closer here.
First: The first thing Obama plans to do is repeal the Bush tax cuts. That will immediately raise everyone's taxes. Even though the Liberals like to claim that the Bush tax cuts were only cuts to the rich, the fact is the middle class got a very nice tax cut as well. My own tax burden went down over $2000.00 with the cuts and I am anything but rich.
Next: Obama doesn't have any actual tax cuts in his plan. He calls them refundable tax credits. Now, this is important because it means that anyone can claim these credits, even if they don't owe any taxes at all. Stick with me on this one because this is where the wealth transfer happens. If someone doesn't pay any taxes because their income level is too low, but they are still able to claim these credits, it means they are getting money from the government. Money that you and everyone else that does pay taxes is going to those who don't! Isn't this exactly the same thing as the example I used above?
Also: Let's not forget, Obama has also promised to raise capital gains taxes which will affect anyone who has a 401k, 403b, or any other savings plan that has money in the stock market. He has promised to raise corporate income taxes on any business that makes over $250,000.00 a year. He claims this won't affect small businesses, but one study showed that over 97% of all small businesses in America make over this amount a year.
He also wants to tax what he calls windfall profits on businesses. Okay, first of all, what constitutes a windfall profit, and who gets to decide? Secondly, if a company is worried about getting hit with this tax, will they strive to reach those profits, or will they slow production when they get close to this magic mythical number? Finally, Liberals don't seem to understand that companies don't pay taxes. Huh? That doesn't make sense? Think about it this way; if a company's price on anything goes up, do they just pay the increase or do they raise the price they charge to customers? Does the price of milk, eggs, clothing, or anything else go up? Why? Because the producer of those products had an increase somewhere while making the product. This includes taxes the business has to pay!
Okay, with all of Obama's tax increases coupled with repealing the Bush tax cuts, and no actual tax cuts. Obama will push this economy into a recession that may take years to reverse.
That scares me! It should scare you too!
While in Toledo recently, a plumber raised the issue with Obama that under Obama's economic plan, the plumber's taxes would go up. Listen to the clip below which features Obama's answer. Listen carefully. Listen twice if you need to, I'll wait.
Okay, are the hairs on the back of your neck standing up? This has to be one of the scariest answers to a tax question I have ever heard from a Presidential candidate. For those who don't understand the answer, let me spell it out as clearly as I can. This is pure Socialism. Obama is talking about redistribution of wealth here. He believes that he knows better than you do how to use your money.
If you have a friend or relative that thinks Obama has a good economic plan try explaining it to them this way.
Let's imagine that Obama has proposed a new tax plan that he is running through congress. Let's also say he is calling it The citizen helps plan for America. In this plan, the government will decide who owes money and who needs help. Instead of you paying your taxes to the government (remember, even if you got a refund, you still probably paid some amount), your neighbor sends you a bill that says you have to pay them directly. It could be $2000.00 a year, or $500.00 a quarter, but either way, you are legally bound to pay your neighbor the money because the government decided that you make too much and your neighbor doesn't make enough. If you don't cut your neighbor a check and they complain, you will be held accountable by the government. Maybe you won't be able to register your car, or you get a fine, or something similar.
Do you think this idea would fly with the American people? No way, you're crazy, people would never agree to this idea would they?
The only difference between my example above and Obama's plan is the middle man. Yes, under his plan, you pay the government, they hold the money for awhile, and then they decide who to cut the checks to.
So, you think I'm exaggerating? You think his plan doesn't do this? Obama keeps saying that 95% of Americans won't pay any additional taxes. He also claims that most of the middle class will get a tax cut. Wait, lets look at his tax plan a little closer here.
First: The first thing Obama plans to do is repeal the Bush tax cuts. That will immediately raise everyone's taxes. Even though the Liberals like to claim that the Bush tax cuts were only cuts to the rich, the fact is the middle class got a very nice tax cut as well. My own tax burden went down over $2000.00 with the cuts and I am anything but rich.
Next: Obama doesn't have any actual tax cuts in his plan. He calls them refundable tax credits. Now, this is important because it means that anyone can claim these credits, even if they don't owe any taxes at all. Stick with me on this one because this is where the wealth transfer happens. If someone doesn't pay any taxes because their income level is too low, but they are still able to claim these credits, it means they are getting money from the government. Money that you and everyone else that does pay taxes is going to those who don't! Isn't this exactly the same thing as the example I used above?
Also: Let's not forget, Obama has also promised to raise capital gains taxes which will affect anyone who has a 401k, 403b, or any other savings plan that has money in the stock market. He has promised to raise corporate income taxes on any business that makes over $250,000.00 a year. He claims this won't affect small businesses, but one study showed that over 97% of all small businesses in America make over this amount a year.
He also wants to tax what he calls windfall profits on businesses. Okay, first of all, what constitutes a windfall profit, and who gets to decide? Secondly, if a company is worried about getting hit with this tax, will they strive to reach those profits, or will they slow production when they get close to this magic mythical number? Finally, Liberals don't seem to understand that companies don't pay taxes. Huh? That doesn't make sense? Think about it this way; if a company's price on anything goes up, do they just pay the increase or do they raise the price they charge to customers? Does the price of milk, eggs, clothing, or anything else go up? Why? Because the producer of those products had an increase somewhere while making the product. This includes taxes the business has to pay!
Okay, with all of Obama's tax increases coupled with repealing the Bush tax cuts, and no actual tax cuts. Obama will push this economy into a recession that may take years to reverse.
That scares me! It should scare you too!
Tuesday, February 20, 2007
Jim Doyle's definition of a tax
Wisconsin's Governor must have absolutely no idea how businesses operate or capitalism works. Governor Jim Doyle was elected to his second term this past November, and in both of his campaigns he promised all of us that he would not only not raise taxes, but would additionally put in place a "tax freeze". Okay, enough of you out there bought his load of bull to get him re-elected. I want to go on record right now and say, "Don't blame me because I didn't vote for him."
Doyle spent last week talking to various news outlets trying to explain how all of his increases do not qualify as tax increases. Some of his logic is sophistry, but some of his explanations make me wonder if he knows anything about businesses and how they operate. Doyle is proposing huge tax increases on cigarettes, oil companies, hospitals, replacing the 2% cap on property tax increases to 4%, and possibly removing the QEO for teachers. There are also fee increases proposed on vehicle registration among other things that don't get called taxes, but let's get real. If you have to pay something I don't care what you call it; it's a tax.
Doyle's proposals amount to a 1.7 billion (yeah, that B as in BILLION) dollar increase in taxes and fees that you and I are going to have to dig into our pockets to pay for. The worst part of the whole thing is the way Doyle is trying to "spin" all of this. He thinks the average Wisconsinite will believe him when he says that his oil company tax won't be "passed on to the consumer." He actually called this tax increase a "no brainer." He is trying to tell us that language in his increase would keep oil companies from passing on the increase to consumers. Come on, does he really not know how businesses operate? Businesses always pass on their costs to consumers, and paying taxes is one of the costs of doing business that gets passed on. I'm not picking on oil companies here either. All companies do this; if a company can't cover the cost of doing business AND make a profit they won't be in business very long. Oil companies will get this tax money back. They can call the increase to the customer anything they want and there isn't a darn thing the Governor of Wisconsin can do about it.
Democrats always say that they are "for the little guy." How, if that is actually true, can Doyle justify increasing the tax on a pack of cigarettes from 77 cents a pack to $2.02 a pack. Who is this going to hit the hardest? A "rich" person who smokes can absorb the $1.25 increase per pack a whole lot easier than a "poor" person. Doyle says the increased money would help cover the costs of health care and help wean people off of smoking. Huh? If he really believes this will help people stop smoking then he would have projected the money this will generate a lot lower. The whole thought process behind his increase is wrong. But, he knows that no one will object to this because even smokers won't raise any objections to it. If democrats really want to help the little guy why not out law all tobacco products? They will never do this because while they say they are against smoking; they sure do like all of the tax money collected on the backs of tobacco.
Doyle's tax on hospitals amounts to nothing more than a shell game in which he not only gets to punish hospitals that do well, but also get federal money in the process. In a democrats mind any money that the federal government offers must be spent. Even if you have to raise taxes to do it. Where does he think this federal money comes from? Once again, we the tax payers have supplied the federal government with the money that Doyle wants. He tries to claim that hospitals will end up getting more money in the long run. That only works if the State makes good on its promise to give them the money. If I ran a hospital I wouldn't hold my breath on that one. Once again Doyle misses the main point that the cost of this new tax will be passed on to its customers who happen to be sick.
At what point will the public tell Doyle enough is enough? Are we all just sheep who do what ever this Governor says? If that's the case then we really do deserve the government we elect.
Doyle spent last week talking to various news outlets trying to explain how all of his increases do not qualify as tax increases. Some of his logic is sophistry, but some of his explanations make me wonder if he knows anything about businesses and how they operate. Doyle is proposing huge tax increases on cigarettes, oil companies, hospitals, replacing the 2% cap on property tax increases to 4%, and possibly removing the QEO for teachers. There are also fee increases proposed on vehicle registration among other things that don't get called taxes, but let's get real. If you have to pay something I don't care what you call it; it's a tax.
Doyle's proposals amount to a 1.7 billion (yeah, that B as in BILLION) dollar increase in taxes and fees that you and I are going to have to dig into our pockets to pay for. The worst part of the whole thing is the way Doyle is trying to "spin" all of this. He thinks the average Wisconsinite will believe him when he says that his oil company tax won't be "passed on to the consumer." He actually called this tax increase a "no brainer." He is trying to tell us that language in his increase would keep oil companies from passing on the increase to consumers. Come on, does he really not know how businesses operate? Businesses always pass on their costs to consumers, and paying taxes is one of the costs of doing business that gets passed on. I'm not picking on oil companies here either. All companies do this; if a company can't cover the cost of doing business AND make a profit they won't be in business very long. Oil companies will get this tax money back. They can call the increase to the customer anything they want and there isn't a darn thing the Governor of Wisconsin can do about it.
Democrats always say that they are "for the little guy." How, if that is actually true, can Doyle justify increasing the tax on a pack of cigarettes from 77 cents a pack to $2.02 a pack. Who is this going to hit the hardest? A "rich" person who smokes can absorb the $1.25 increase per pack a whole lot easier than a "poor" person. Doyle says the increased money would help cover the costs of health care and help wean people off of smoking. Huh? If he really believes this will help people stop smoking then he would have projected the money this will generate a lot lower. The whole thought process behind his increase is wrong. But, he knows that no one will object to this because even smokers won't raise any objections to it. If democrats really want to help the little guy why not out law all tobacco products? They will never do this because while they say they are against smoking; they sure do like all of the tax money collected on the backs of tobacco.
Doyle's tax on hospitals amounts to nothing more than a shell game in which he not only gets to punish hospitals that do well, but also get federal money in the process. In a democrats mind any money that the federal government offers must be spent. Even if you have to raise taxes to do it. Where does he think this federal money comes from? Once again, we the tax payers have supplied the federal government with the money that Doyle wants. He tries to claim that hospitals will end up getting more money in the long run. That only works if the State makes good on its promise to give them the money. If I ran a hospital I wouldn't hold my breath on that one. Once again Doyle misses the main point that the cost of this new tax will be passed on to its customers who happen to be sick.
At what point will the public tell Doyle enough is enough? Are we all just sheep who do what ever this Governor says? If that's the case then we really do deserve the government we elect.
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