Monday, February 04, 2008

Taxation - A Real Life Example

So, I'm an avid Fair Tax supporter and really enjoy this real life example of our tax system, which was shared with me via email. Take the time to read it. It's both entertaining and educational.

Best explanation to share with your congressman, who clearly does not understand this complex principle. Our Tax System Explained: Bar Stool Economics.

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 thearrangement, until one day, the owner threw them a curve. "Since you are all such good customers, I'm going to reduce thecost of your daily beer by $20."

Drinks for the ten now cost just $8 0.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 endup 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 comparetheir 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 withouthim. 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, ladies and gentlemen, journalists and college professors, is howour 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 startdrinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.Professor of EconomicsUniversity of Georgia. For those who understand, no explanation is needed.For those who do not understand, no explanation is possible.

Amen Dr. Kamerschen! This is not a difficult concept to understand. Becoming financially secure or even independently wealty is part of the American dream, but our current tax system is setup to punish achievement and success. If you think that a tax system that forces investment and factories to other countries is a good idea, then we have the right tax system for you. If you believe that the United States should be the leading economic power and the world's greatest tax haven, then the Fair Tax is right for you.

I believe in the Fair Tax. And by the way, in the drinking scenario above, under the Fair Tax, each patron would pay the exact same amount in tax on their beer - which is the way it should be when buying beer.

##That's my opinion##

1 comment:

Beth said...

And in that example, the tenth guy would go to jail if he didn't show up one day, it's so crazy unfair.