Friday, October 24, 2008

Robbing from the Rich, Giving to the Poor Hurts Both Rich and Poor

That’s what Democrats think of Republicans, while fashioning themselves to be the “champions of the poor and working class”. I’m so sick of the class warfare “tax cuts for the wealthy class” rhetoric of the Democrats. Tax cuts helps EVERYONE, paving the way for our society to grow more wealth for all.

This is brilliant:

Bar Stool Economics NOT by David R. Kamerschen, Ph.D.

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

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.

Hat tip: Michael Medved Show

Bush tax cuts myth #10:

Myth #10: The Bush tax cuts were tilted toward the rich.
Fact: The rich are now shouldering even more of the income tax burden.

Popular mythology also suggests that the 2001 and 2003 tax cuts shifted more of the tax burden toward the poor. While high-income households did save more in actual dollars than low-income households, they did so because low-income house­holds pay so little in income taxes in the first place. The same 1 percent tax cut will save more dollars for a millionaire than it will for a middle-class worker simply because the millionaire paid more taxes before the tax cut.

Top 1% Pay More Income Tax Than Bottom 90%

The Tax Foundation has published Summary of Latest Federal Individual Income Tax Data:

New data released by the IRS today offers interesting insights into the distributional spread of the federal income tax burden, new analysis by the Tax Foundation shows. The new data shows that the top-earning 25% of taxpayers (AGI over $62,068) earned 67.5% of the nation's income, but they paid more than four out of every five dollars collected by the federal income tax (86%). The top 1% of taxpayers (AGI over $364,657) earned approximately 21.2% of the nation's income (as defined by AGI), yet paid 39.4% of all federal income taxes. That means the top 1% of tax returns paid about the same amount of federal individual income taxes as the bottom 95% of tax returns.

Cross-posted at Flopping Aces

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Blogger TAO said...

The top 1% of taxpayers paid more taxes because they own 90% of this country's wealth. Thus, it is as it should be. Then when you realize that the wealth disparity between the top 1% and everyone else was at its peak in 1928 and again in 2007 you can only wonder if the current economic mess will be as bad as it was during the depression. History does repeat its self you know!

Friday, October 24, 2008 5:52:00 AM  
Blogger Chuck said...

Wordsmith, this is the best explanation of the progressive tax system I have seen. Although I have understood it fairly well, it gives the economics-ignorant like me something to relate it to. Specifically, beer.

Tao, it depends on what your definition of "more" means. If more means that they pay the same rate but a higher dollar amount, I am right with you. If more means a higher percentage, I simply don't think it can be justified. This is class warfare and punishing success.

I am fully supportive of a flat tax system with some safeguards for the working poor. Such as personal and child exemptions. Maybe make it to where a family of four pays no taxes on say the first $20,000 of income for example. Then eliminate almost all other exemptions. Further make all income taxable, capital gains, etc.

Friday, October 24, 2008 6:54:00 AM  
Blogger Gayle said...

It's brilliant for sure, but even spelled out in such simple terms, there are many who won't be swayed. I can't believe that people don't understand this. After all, it's so basic!

Excellent work here, Wordsmith, as usual.

Friday, October 24, 2008 7:28:00 AM  
Blogger The WordSmith from Nantucket said...

A commenter on my cross-post says Dr. Kamerschen is not the author.

Friday, October 24, 2008 10:38:00 AM  
Blogger Karen said...

Excellent explanation, no matter who originally wrote it. Economics are not my strong suit but I do know that the lower 40% of Americans do not pay federal income tax and for Obama to cut them a check for a 'tax cut' is simply welfare, not a tax cut. I also know that with small business owners paying at the higher personal tax rates, the price paid by higher taxes under Obama will cause many to go under. More unemployment, less tax base. "Punishing" business for success is always a losing policy. Plus, not renewing the tax cuts in 2010 will increase middle class families tax burden. OK, stepping off the soapbox now...

Friday, October 24, 2008 8:01:00 PM  
Anonymous Anonymous said...

Wow...your paper making site is more interesting! You should really stick to your orgami site and stop worrying about politics!!!


Friday, October 24, 2008 8:02:00 PM  
Blogger The WordSmith from Nantucket said...

Maybe you should consider the same, karyn. Thanks for the visit. It warms the cockles of my heart.

Friday, October 24, 2008 9:15:00 PM  
Blogger cube said...

This should be plastered all over TV, radio, newspapers, etc.

This is a McCain victory come election day.

If only we had a free press that would help us disseminate this valuable information...


Friday, October 24, 2008 10:27:00 PM  
Blogger The WordSmith from Nantucket said...


Go to my FA cross-post and read Kitty's story. It's also one to treasure.

Friday, October 24, 2008 10:35:00 PM  
Blogger cube said...

I'd love to, just show me how.

Friday, October 24, 2008 10:45:00 PM  
Blogger The WordSmith from Nantucket said...

Cross-post is linked at the bottom of my post here. Also, 4th comment here, also links to the post, to another comment.

Comment #2.

Friday, October 24, 2008 10:49:00 PM  
Blogger cube said...

Thank you for the help. Turns out I had seen this before, but it doesn't make the story any more timeless.

I'm sure I'm not the only one that hopes (nay, fervently prays) that there will be more of us hardworking Americans voting for McCain come election day rather than those who would vote for Obama.

Friday, October 24, 2008 11:28:00 PM  
Blogger Donald Douglas said...

Great post!

I don't want to get beat up!

Saturday, October 25, 2008 12:25:00 PM  
Blogger Bloviating Zeppelin said...

Dear Wordsmith:

Your negativity deflates me. Why is it that you think Obama/Biden can't tax and spend their way out of this horrible economy? That tactic has worked every other time it's been tried. You simply need to be quiet and get to work. You need to know your place, sir.


Saturday, October 25, 2008 3:53:00 PM  
Blogger Jennifer said...

Great comparison, but like Gayle said, so many simply won't get it. Whether it is out of plain ignorance or stupidity, neither one is acceptable. I am not a genius when it comes to economics, but this lays it out in simple terms.

Saturday, October 25, 2008 5:48:00 PM  
Blogger Z said...

Giving tax breaks to those who don't pay taxes..only in America.

Saturday, October 25, 2008 9:35:00 PM  

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