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# Thread: Taxes and how they work...

1. ## Taxes and how they work...

Sometimes politicians can 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, we hope the following will help.

Tax Cuts - A Simple Lesson In Economics by David R. Kamerschen, Ph.D.,
Distinguished Professor of Economics; 536 Brooks Hall, University of
Georgia.

Let's put tax cuts in terms everyone can understand. Suppose that every
day, ten men go out for dinner.
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 \$7.
The eighth \$12.
The ninth \$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."

So, now dinner for the ten only cost \$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, the paying customers? How could they divvy
up the \$20 windfall so that everyone would get his 'fair share'?

The six men 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 \$2? 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 at the table anymore. There are
lots of good restaurants in Europe and the Caribbean .

Thanks David R. Kamerschen, Ph.D., Distinguished Professor of Economics,
U of Georgia

2. Very cute........but too bad Bush has raised the price of the meal.......
the way GW did it would result in all the men at the police station for not paying for
the dinner.

Very cute........but too bad Bush has raised the price of the meal.......
the way GW did it would result in all the men at the police station for not paying for
the dinner.
Huh??? Not sure I get what your saying here today man? How did Bush raise the price of a meal??? What?? I know you think Bush is evil and the source of all your problems, but what the hell are you trying to say here?

4. Originally Posted by Jdawg50

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."

So, now dinner for the ten only cost \$80. The group still wanted to pay
their bill the way we pay our taxes.

JDAWG....seems you didn't read very carefully.....you see....the meal is the budget.....what it COSTS to run the government. The owner is the government........

Now if the government had REDUCED costs first and then given the money back......then the story makes sense........

The way it reads now is just stupid......because the meal ticket price is just going up up up

5. dawg i believe badger has you there.

6. jdawg, the epitome of political impartiality.

JDAWG....seems you didn't read very carefully.....you see....the meal is the budget.....what it COSTS to run the government. The owner is the government........

Now if the government had REDUCED costs first and then given the money back......then the story makes sense........

The way it reads now is just stupid......because the meal ticket price is just going up up up

I think your missing the point here. The point is that the upper income people pay the highest share of taxes, and low income people pay nothing. The point of this is that the people that are paying the majority burden of taxes should recieve the majority of the tax cut.

8. Originally Posted by sin
jdawg, the epitome of political impartiality.
I guess you did not see my avatar... I love it, like your totally impartial? Please <--- right back atcha

9. Originally Posted by Jdawg50
I think your missing the point here. The point is that the upper income people pay the highest share of taxes, and low income people pay nothing. The point of this is that the people that are paying the majority burden of taxes should recieve the majority of the tax cut.
No, YOU'RE the one missing the point. With your way of thinking there will be no restaurant after it gives away food at a lower rate so the rich can eat cheaper. You obviously have no idea what a balance sheet is.......unfortunately the government can operate( albeit poorly) in the red.......most people have the problem of their checks bouncing when there's an overdraft.

10. Originally Posted by Jdawg50
I guess you did not see my avatar... I love it, like your totally impartial? Please <--- right back atcha

im so impartial that im not voting, hows that?

11. And, Why is it so great to be impartial btw? Good for you, your not voting. What is that something your proud of man? I respect the people (IE: Badgerman) voting for Kerry more than you, at least they are getting out and participating in the electoral process.

12. Originally Posted by Jdawg50
And, Why is it so great to be impartial btw? Good for you, your not voting. What is that something your proud of man? I respect the people (IE: Badgerman) voting for Kerry more than you, at least they are getting out and participating in the electoral process.

do people really think that the opinions of two parties can encompass the beliefs of 300 million people? thats the kind of thinking that gets us fighting over political party rhetoric and fixated on reiterating political commercials as if they were facts. if you step back and think about it, they are all saying the same things. and if you cant see it, your thought processes havent evolved very far.

13. Originally Posted by sin
do people really think that the opinions of two parties can encompass the beliefs of 300 million people? thats the kind of thinking that gets us fighting over political party rhetoric and fixated on reiterating political commercials as if they were facts. if you step back and think about it, they are all saying the same things. and if you cant see it, your thought processes havent evolved very far.
So its better to do nothing?
Fine with me man.. do nothing... its a two party system like it or not.

14. Originally Posted by Jdawg50
So its better to do nothing?
Fine with me man.. do nothing... its a two party system like it or not.
its not better to do nothing, its just unfortunate that nothing can be done.

15. Sin did u ever read my post about party over person?

16. Party Still Trumps Person

With just 80 days to go before the election, it's time for my quadrennial column on party vs. person. I've been offering and updating this polemic for more than 20 years. For veteran voters, this may be review; for rookies, perhaps, a new concept.

A time-honored cliche heard every election year goes something like this: "I'm an independent thinker; I vote the person, not the party." This pronouncement is supposed to demonstrate open-mindedness and political sophistication on the part of the pronouncer. It's your vote, cast it any way you like - or not at all. But idealism and naivete about the way our electoral process and system of government works shouldn't be mistaken for wisdom or savvy.

For better or worse, we have a two-party system. And party trumps person. Either a Republican, George W. Bush, or a Democrat, John Kerry, is going to be elected president in November. No one else has a chance.

Not Ralph Nader, not the Libertarian candidate, nor the Communist, nor the Green. Minor party candidates are sometimes spoilers - like Nader costing Gore the presidency in 2000 - but they don't win presidential elections. Ross Perot got 20 million popular votes in 1992, and exactly zero Electoral College votes.

In Europe's multiparty, parliamentary democracies, governing coalitions are formed after an election. In our constitutional republic, the coalitions are formed first.

The Republican coalition includes, for the most part, middle- and upper-income taxpayers (but not leftist Hollywood millionaires and George Soros), individualists who prefer limited government, pro-market and pro-business forces, believers in American exceptionalism and a strong national defense, social-issues conservatives and supporters of traditional American values.

The Democratic coalition is an ******** of collectivists, labor unions (especially the teachers' unions), government workers, academics, plaintiffs-lawyers, lower- and middle-income net tax-receivers, most minorities, feminists, gays, enviros, and activists for various anti-capitalist, anti-business, anti-military, anti-gun, one-world causes.

I say party trumps person because regardless of the individual occupying the White House, the coalition will be served.

A Democratic president, whether a liberal or a moderate (conservative Democrats, if any still exist, can't survive the nominating process), can operate only within the political boundaries of his party and its coalition. The party that wins the presidency gets to staff all the discretionary positions in the executive and judicial branches of government. Members of its coalition are awarded vital policy-making government jobs, judgeships, ambassadorships and appointments to boards and commissions, as well as a host of plum jobs handed out to those who have political IOUs to cash in.

A vote for Bush is a vote for the Republican agenda and conservative players in key posts. A vote for Kerry is a vote for the influence of the National Education Association, the National Organization for Women, the American Civil Liberties Union and the likes of Al Sharpton and Michael Moore.

The legislative branch is no different. After the individual members of a new Congress have been seated, a figurative nose count is taken and the party with the most noses wins. That victory carries with it control of all committee and subcommittee chairmanships, the locus of legislative power.

Now, let's say you're a registered Republican voter who clearly prefers the Republican philosophy of governance. And you're a good-natured, well-intentioned person who happens to like an individual Democrat, a Senate candidate, who's somewhat conservative. You decide to cross party lines and vote for him.

As it turns out, he wins, beating a Republican and giving the Democrats a one-vote majority, 51-49, in the U.S. Senate.

Congratulations! You just got Ted Kennedy, Patrick Leahy, Dianne Feinstein and Hillary Clinton as key committee chairs, and a guarantee that your Republican legislative agenda will be stymied.

That's the way the process works. Does this mean that in a two-party system like ours it comes down to choosing between the lesser of two evils? You bet it does. That's not to say that either party is really "evil," that's just an expression.

If we had 280 million custom-tailored minor parties, everyone could find his perfect match.

But that's not practical.

You can be a purist and cast your vote symbolically with a boutique party, or be a player and settle for the least imperfect of the Republican or Democrat alternatives. Your vote, your choice.

--------------------------------------------------------------------------------

Why Party Trumps Person, Friday, August, 13 2004

With just 80 days to go before the election, it's time for my quadrennial column on party vs. person. I've been offering and updating this polemic for more than 20 years. For veteran voters, this may be review; for rookies, perhaps, a new concept.

A time-honored cliche heard every election year goes something like this: "I'm an independent thinker; I vote the person, not the party." This pronouncement is supposed to demonstrate open-mindedness and political sophistication on the part of the pronouncer. It's your vote, cast it any way you like - or not at all. But idealism and naivete about the way our electoral process and system of government works shouldn't be mistaken for wisdom or savvy.

For better or worse, we have a two-party system. And party trumps person. Either a Republican, George W. Bush, or a Democrat, John Kerry, is going to be elected president in November. No one else has a chance.

Not Ralph Nader, not the Libertarian candidate, nor the Communist, nor the Green. Minor party candidates are sometimes spoilers - like Nader costing Gore the presidency in 2000 - but they don't win presidential elections. Ross Perot got 20 million popular votes in 1992, and exactly zero Electoral College votes.

In Europe's multiparty, parliamentary democracies, governing coalitions are formed after an election. In our constitutional republic, the coalitions are formed first.

The Republican coalition includes, for the most part, middle- and upper-income taxpayers (but not leftist Hollywood millionaires and George Soros), individualists who prefer limited government, pro-market and pro-business forces, believers in American exceptionalism and a strong national defense, social-issues conservatives and supporters of traditional American values.

The Democratic coalition is an ******** of collectivists, labor unions (especially the teachers' unions), government workers, academics, plaintiffs-lawyers, lower- and middle-income net tax-receivers, most minorities, feminists, gays, enviros, and activists for various anti-capitalist, anti-business, anti-military, anti-gun, one-world causes.

I say party trumps person because regardless of the individual occupying the White House, the coalition will be served.

A Democratic president, whether a liberal or a moderate (conservative Democrats, if any still exist, can't survive the nominating process), can operate only within the political boundaries of his party and its coalition. The party that wins the presidency gets to staff all the discretionary positions in the executive and judicial branches of government. Members of its coalition are awarded vital policy-making government jobs, judgeships, ambassadorships and appointments to boards and commissions, as well as a host of plum jobs handed out to those who have political IOUs to cash in.

A vote for Bush is a vote for the Republican agenda and conservative players in key posts. A vote for Kerry is a vote for the influence of the National Education Association, the National Organization for Women, the American Civil Liberties Union and the likes of Al Sharpton and Michael Moore.

The legislative branch is no different. After the individual members of a new Congress have been seated, a figurative nose count is taken and the party with the most noses wins. That victory carries with it control of all committee and subcommittee chairmanships, the locus of legislative power.

Now, let's say you're a registered Republican voter who clearly prefers the Republican philosophy of governance. And you're a good-natured, well-intentioned person who happens to like an individual Democrat, a Senate candidate, who's somewhat conservative. You decide to cross party lines and vote for him.

As it turns out, he wins, beating a Republican and giving the Democrats a one-vote majority, 51-49, in the U.S. Senate.

Congratulations! You just got Ted Kennedy, Patrick Leahy, Dianne Feinstein and Hillary Clinton as key committee chairs, and a guarantee that your Republican legislative agenda will be stymied.

That's the way the process works. Does this mean that in a two-party system like ours it comes down to choosing between the lesser of two evils? You bet it does. That's not to say that either party is really "evil," that's just an expression.

If we had 280 million custom-tailored minor parties, everyone could find his perfect match.

But that's not practical.

You can be a purist and cast your vote symbolically with a boutique party, or be a player and settle for the least imperfect of the Republican or Democrat alternatives. Your vote, your choice.

17. like i said, its unfortunate. perhaps if we went away from the electoral college and went to a simple majority?

18. I like the electoral college.

19. Originally Posted by Jdawg50
I like the electoral college.
That's because you're an elitist with fascist tendencies.

That's because you're an elitist with fascist tendencies.
OMG
Name calling again... fine your a pinko commie.. Socailist...with a Eutopia outlook thats unrealistic.

21. At least learn how to spell .....socialist

At least learn how to spell .....socialist
Ewww good one... there's no spellcheck on here, and I never professed to be a english major.

23. The big problem with these "Simple Lessons" is that they are overly simplistic and fail to take into consideration what happens in real life.

For starters:

Originally Posted by Jdawg50
Suppose that every day, ten men go out for dinner.
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 \$7.
The eighth \$12.
The ninth \$18.
The tenth man (the richest) would pay \$59.
In real life, rich guys seldom dine at the same restaurants as poor people do, so this situation wouldn't be likely to ever occur. But if it did, everyone would get seperate checks, or pay for their own bill seperately.

To draw conclusions from unlikely situations is silly; nevertheless, there are plenty of odd academicians around to fill the need for scholastic absurdity.

-Tock

24. I've heard this before, its a great analogy and totally makes sense. Now everyone can see how the biggest tax break goes to the wealthy.......Now what do the poor have to bltch about?? You get tax breaks based on how much taxes you pay, simple as that.....All this \$hit about "Bush has raised the price of the meal" and "this is not a real life situation" is just ignoring the point, like jdawg said.

25. Originally Posted by Jeremy34
I've heard this before, its a great analogy and totally makes sense. Now everyone can see how the biggest tax break goes to the wealthy.......Now what do the poor have to bltch about?? You get tax breaks based on how much taxes you pay, simple as that.....All this \$hit about "Bush has raised the price of the meal" and "this is not a real life situation" is just ignoring the point, like jdawg said.
The point is the meal has to be cheaper FIRST before you dole out the bucks
You've got is bass ackwards.......
I'm wealthy..... probably pay alot more taxes than you make in a year and I'm bitching about the budget deficit....SOOO.....STFU

26. Badger, explain, how do you propose to make the meal cheaper? Please try and explain it logically, not skewed by your leftist ideals.

27. Cut spending........like tobacco farm buyouts........that Bush just signed into law......
Cut crap like that....THEN cut taxes.

28. Ya . . . the City of Arlington is going to spend over \$300 million to help the Dallas Cowboys build a shiny new football stadium. It's gonna cost the taxpayers there a lot of extra taxes, and most of the benefit will accrue to the owners of the football franchise.

I have no problem with a private organization building things like football stadiums, but there is no reason why the government should help 'em build them, especially when the cost to taxpayers is so high, and when there's another stadium in the city right next door.
And seeing how the football players are financially comfortable, and the owners are millionaires, I'd expect that government money be applied to things like education or police or filling potholes.

. . . just my libertarian side coming out . . .
-Tock

Cut spending........like tobacco farm buyouts........that Bush just signed into law......
Cut crap like that....THEN cut taxes.
"Cut spending" is a Greek phase to Dems.....that is not in line with your party bro.....and cut taxes??? Jesus, this thread was exactly about that, we cut taxes for EVERYONE....and the rich will get a bigger break than the poor....it really shouldn't take a rocket scientist to understand that point.

30. Except that the rich also get more subsidies than the poor.
I can tell you right now that I'm getting zero \$\$\$ from the government to start up my barber shop, yet the owners of the Dallas Cowboys are getting over \$300 million.

Ain't fair, I tell ya. It ain't fair.

-Tock

31. Originally Posted by Tock
Except that the rich also get more subsidies than the poor.
I can tell you right now that I'm getting zero \$\$\$ from the government to start up my barber shop, yet the owners of the Dallas Cowboys are getting over \$300 million.

Ain't fair, I tell ya. It ain't fair.

-Tock
Don't you just hate the Cowboys? I'm no longer a football fan because of all the dang Cowboy fans here....I wish them many losses every season...

32. Originally Posted by Jdawg50
I think your missing the point here. The point is that the upper income people pay the highest share of taxes, and low income people pay nothing. The point of this is that the people that are paying the majority burden of taxes should recieve the majority of the tax cut.
The point of a tax cut is to give ppl money so that money can be put back into the economy. That didn't happen with the rich when they got their tax cuts, the majority of that money received by the rich was invested in speculative stocks. Also, this is the first time ever that during a war, tax cuts were given to the rich, over all the previous wars, taxes were increased on the rich.

33. Originally Posted by saboudian
The point of a tax cut is to give ppl money so that money can be put back into the economy. That didn't happen with the rich when they got their tax cuts, the majority of that money received by the rich was invested in speculative stocks. Also, this is the first time ever that during a war, tax cuts were given to the rich, over all the previous wars, taxes were increased on the rich.

Nice assertion bro...
Show me the money as they say? Where's your data to back that up?
Why have we come out of this recession? Why do we have one of the lowest unemployment rates in the last 30 years? And the "So called rich" are also small busines owners. Those taxes allowed them to buy more capital equiptment, thus highering more workers. You seem to think that whenever the "Rich" get a tax break (even though they are the largest net tax payers) that that is bad. You could not be more wrong. You cant give tax breaks to people that don't pay taxes bro.

34. http://news.yahoo.com/news?tmpl=stor...s_041011212152
> >
> >
> > Nobel laureate calls for steeper tax cuts in US
> >
> > Mon Oct 11, 5:21 PM ET Politics - AFP
> >
> >
> > WASHINGTON (AFP) - Edward Prescott, who picked up
> > the Nobel Prize for Economics, said President George
> > W. Bush (news - web sites)'s tax rate cuts were
> > "pretty small" and should have been bigger.
> >
> > AFP/Royal Swedish Academy of Science-HO/File Photo
> >
> >
> > "What Bush has done has been not very big, it's
> > pretty small," Prescott told CNBC financial news
> > television.
> > "Tax rates were not cut enough," he said.
> > Lower tax rates provided an incentive to work,
> > Prescott said.
> > Prescott and Norwegian Finn Kydland won the 2004
> > Nobel Economics Prize for research into the forces
> > The American analyst, who is a professor at Arizona
> > State University and a researcher at the Federal
> > Reserve (news - web sites) Bank of Minneapolis, said
> > a large tax cut in 1986 had lowered rates while
> > collecting the same revenue.
> > But "in the early '90s the economy was depressed by
> > the tax increase in '93 by about four percent, and
> > it's right at that level now," Prescott said.
> > Bush, who is fighting to get re-elected November 2,
> > has cut taxes by about 1.7 trillion dollars during
> > his term.
> > The US leader accuses his Democratic rival John
> > Kerry (news - web sites) of favoring tax increases,
> > despite Kerry's promise to cut taxes for everyone
> > earning less than 200,000 dollars a year.

35. What your suggesting is that the lowest income bracket get more money back... We'll since they don't pay any income tax, then they should not get any money back. If you want to do that then you need to call a spade a spade, and that is Re-distribution or wealth. That is basically wrong in my eyes bro. sorry. The people that pay taxes are the ones that deserve the tax breaks, and the rich pay a shi! load of taxes even under the Bush plan. I think thats perfectly fair to give them a tax break. It has sparked the economy, and will continue too. No use argueing this anymore. Bush won last night in case you missed the news today. More tax cuts on the way.... I hope...

36. Originally Posted by Jdawg50
You cant give tax breaks to people that don't pay taxes bro.
EXACTLY

37. Originally Posted by Jdawg50
You cant give tax breaks to people that don't pay taxes bro.

Originally Posted by Jeremy34
EXACTLY
Maybe that's the issue in the fictitional example given, but I don't think that's the issue in the real world. No one is asking for tax breaks for folks who pay no taxes.

What is the issue are taxes on people who are just barely getting by vs. taxes on people that are doing quite well. If a 30% tax is going to sink low income folks but only inconvience rich folks, do you still impose an across-the-board 30% tax, or do you give the poorer folks a break?

--Tock

38. [QUOTE=Tock]Originally Posted by Jdawg50
You cant give tax breaks to people that don't pay taxes bro.

Maybe that's the issue in the fictitional example given, but I don't think that's the issue in the real world. No one is asking for tax breaks for folks who pay no taxes.

That is exactly what Kerry and the liberals were suggesting. When they talk about tax credits for people that pay no taxes. That's what they were suggesting in thier tax plans.

39. Sin and Badgerman you are funny.. So you guys would rather have a popular voting system than a electoral one huh?? How do you suppose that would workout for the remaining 46 states. The majority of our population is in 6 states. If we depended on a popular voting system polaticians wouldnt even have to campain to the rest of the country. A huge part of the country would be left out of the loop with no one fighting for their issues. How would that be very democratic??? liberals are suppose to be about fairness aint ya??

40. Originally Posted by Anhydro78
Sin and Badgerman you are funny.. So you guys would rather have a popular voting system than a electoral one huh?? How do you suppose that would workout for the remaining 46 states. The majority of our population is in 6 states. If we depended on a popular voting system polaticians wouldnt even have to campain to the rest of the country. A huge part of the country would be left out of the loop with no one fighting for their issues. How would that be very democratic??? liberals are suppose to be about fairness aint ya??

What I love about the popular vote issues this time around is that, Bush still kicked Kerry's butt. Notice the talk about the popular vote issue is basically gone now. I was just listening to Randi Rhodes on Air America, and she is actually saying that Ohio was a big conspiracy, votes werent counted, and the voting machines were flaughed.. comon those precincts had 4 years to change it if they had a problem..... man, they just don't know when to quit. To me it boiled down to the fact that a large chunk of the US population has certain basic moral values that they could relate to with Bush, but they could not relate to Kerry, and the liberal elite. That's what cost Kerry the election.. not fear or war.

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