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Understanding Tax Cuts.


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  • Understanding Tax Cuts.

    Understanding Tax Cuts
    by: David R. Kamerschen, Ph.D.

    Sometimes politicians, journalists and the liberal left exclaim; "It's just
    a tax cut for the rich!" and it is just accepted to be fact. But what does
    that really mean? Just in case you are not completely clear on this issue, I
    hope the following will help. Please read it carefully.

    Let's put tax cuts in terms everyone can understand.

    Suppose that every day, ten men go out for dinner 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

    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 ate dinner in the restaurant
    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 meal by $20." Dinner 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 eat 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

    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 eat their meal.

    So, the restaurant 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 paid $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
    eat 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 me!"

    "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 dinner, so the nine sat down
    and ate 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 eating overseas
    where the atmosphere is somewhat friendlier.

    David R. Kamerschen, Ph.D
    Professor of Economics
    University of Georgia
    beer.. the cause of, and solution to.. all of life's problems. Come find me.

  • #2
    Nice. I say repeal the 16th Amendment and everything will be great...
    1986 CJ-7; 4.6L stroker, balanced & blueprinted; 5" lift, 35x1250 MTRs, Poison Spyder Full Width kit,
    My Jeep

    Moab Rocker Knocker Video:shades:


    • #3
      Emmmmmm yah ... except now imagine a restaurant owner that's in HUGE debt while he also has to feed the big security guards that are standing outside and around the place to keep the bad elements out of the joint... and he still is wanting to reduce the costs of the daily meal.

      But all the restaurant owner cares about is keeping the clueless customers ordering more and more of what he's got to offer.
      03 Rubicon, 6" FT long arms, 35x12.5 MTRs
      "Jeep is a kind of vehicle for which you have to buy a $250 security console in order to install and store a $40 CB radio. " --Me.