Sunday, February 10, 2008

"Ten Men go out for Dinner… Who Pays what?"…

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I directed a co-worker to the following example of how taxes are being paid by people in different income levels after there was some confusion on the disparity of who pays what income tax. He found it a very interesting example of how are tax system is aligned and how some pay more then others and even those who pay no income tax at all…

He then presented this example to several of his friends and their comments were interesting to say the least….

Suppose that every day, ten men go out for dinner and the bill for all 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 like they do now with the present income tax structure.


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 of the bill.

So that is what the ten men decide 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 all are such good customers I am going to reduce the cost of your daily meal by $20”. Dinner for the 10 men now costs just $80...


The group still wanted to pay the bill the same way that they paid their 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 everybody would get his “Fair Share”?


They realized that $20 divided by six is $3.33. But they subtracted that from everybody’s share, then the fifth and sixth man would each end up being paid to eat their meal…So, the restaurant owner suggested it would be fair to reduce each mans bill roughly the same amount; and proceeded to work out the amounts each man would pay.


The fifth, like the first four now paid nothing (100% savings).

The sixth man now paid $2 instead of $3 (33% savings)

The seventh man now paid $5 instead of $7 (28% savings)

The eight man now paid $9 instead of $12 (25% savings)

The ninth man now paid $14 instead of $18 (22% savings)

The tenth man now paid $49 instead of $59 (16% savings)


Each of the six was better off then 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. Its 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 exploit’s the poor!”The nine men surrounded the tenth man and beat him up…


The next night the Tenth man did not 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 the bill!


And that Boys & 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 might not show up anymore. In fact, they might start eating overseas where the atmosphere is somewhat friendlier…David R. Kamerschen, PH.DProfessor of EconomicsUniversity of Georgia


The interesting thing is the comments that my co-worker got back from the group, who was made up with a vast majority of Obama & Hillary supporters, when he presented this example.


“It’s only fair that the rich guy pays more for he has more then the other guys”…
“It’s about time that the Rich pays their fair share”…
“Need to trim the fat on the top”…


When my co-worker brought up the point that the top 2 to 3 men in this example already were paying the vast amount of the bill and how was that fair he was shouted down by the group.


My co-worker then stated that one of the Clinton supporters brought up the fact that there was a $$$Trillion$$$ dollar surplus when Bill Clinton was President and President Bush has now run the economy into the ground. The discussion pretty much broke down into a Bush-bashing session thus preventing any logical debate to ensue…


The co-worker now has a list of simple questions to ask his “Clinton supporter” friend and the group at their next gathering…


Did the “Clinton” treasury actually have that Trillion dollar surplus or was that a projected “Surplus” over the next ten years, with the same rate of growth, interest rates, and stock market???…


Would this Trillion dollar surplus have continued if the attacks of 9/11 had happened on President Clinton’s watch???…


If President Clinton did in fact have a Trillion dollar surplus why did he not then fix the Social Security, Medicare, Healthcare problems???…


If it was a known fact that the levees around New Orleans were not sufficient and could not withstand a Cat 3 or higher hurricane, why didn’t President Clinton spend that Trillion dollar surplus on repairing this???…


The above example of “who pays what” when it comes around to paying income tax has been around for awhile. The exact amount of how much each man pays may have changed since this example first appeared. Since the Bush tax cuts went into effect there is even a higher % of income earners who no longer pay income tax. The above example shows the first four men not having to pay any of the bill. In fact now this may also apply to the fifth man. With that the higher 5% of income tax payers are paying a higher % of the total bill… Many of us middle income earners are employed by those who invest their money in creating new businesses and jobs. What happens if the top guy does not show up to dinner tomorrow?

6 comments:

sleeping with the enemy said...

Thats a neat way of looking at it.

sleeping with the enemy said...

But next time beat up the rich guy and grab his wallet so you can still have dinner:)

RightsideVA said...

It has been a very good example to show that we do have a "Progressive" tax structure and the more you earn the MORE you pay in both percentage and actual amount.

It shows that when people like Clinton, Obama, Edwards, and pretty much most of those from the "LeftSide" claim that the "Rich must pay their fair share" they already are paying the bulk. Next time ask them how much is enough and how much should the Govt take out of your pocket...

Truth is "If you rob from Paul and give it to Peter you can always count on Peter's vote"....

That is the whole truth of the Democratic party....

Anonymous said...

But we live in a country where the tenth man doesn't pay any taxes and actually gets money from the government (i.e. government corporate subsidies, government contracts, etc.). A progressive tax system would be lovely... if it existed in the U.S. Instead it is a system in which the sixth, seventh, eighth and ninth man pay all of the taxes (the poor have no money and are therefore exempt) while the top get away scott free.

Anonymous said...

One other comment... both the Democrats and the Republicans represent the tenth man and therefore this story fits the mainstream view of the tax system. The truth though is that the top 400 people in the U.S. have more money than the bottom 150 million making the U.S. the most unfair system in the world. Only by tossing out both corporate party's can the electorate hope to actually install a government that represents the people rather than their corporate sponsors.

Anonymous said...

Interesting but misleading.. Here is the other side of the argument..

Today
Normal People pay $34,500 for every $100,000 in income.
Romney and similar pay $13,900 for every $100,000 in income..

They pay less than 1/2 of taxes on the same amount of income as middle class people.

That's Republican Tax Avoidance, that's Republican Wealth Redistribution..