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How the US tax system works for dummies...
tornsage
Member Posts: 26
How Taxes Work . . .
This is a VERY simple way to understand the tax laws. Read on — it does make you think!!
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, and the tenth man — the richest — would pay $59.
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 (in tax language a tax cut).
“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 $80.00.
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 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 paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of his earlier $59. 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 who pointed to the tenth. “But he got $7!”
“Yeah, that’s right,” exclaimed the fifth man, “I only saved a dollar, too . . . It’s unfair that he got seven times more than me!”.
“That’s true!” shouted the seventh man, “why should he get $7 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 he 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, a little late what was very important. They were FIFTY-TWO DOLLARS short of paying the bill! Imagine that!
And that, boys and girls, journalists and college instructors, is how the 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.
Where would that leave the rest? Unfortunately, most taxing authorities anywhere cannot seem to grasp this rather straightforward logic!
T. Davies Professor of Accounting & Chair, Division of Accounting and Business Law
The University of South Dakota School of Business
Comments
I like this story.
Now let's change the story to a man going out to eat with his wife and his kids.
The bill is $100, which he pays. If the restaurant owner gives them a $20 reduction to the bill, the wife gets $10, and the kids share the other $10. The man must still put in $100.
Next time when they go out to dinner, the man complains how he always comes out on the short end. The wife and kids tell him that, in order to save money, he shouldn't order any food. The man agrees. The bill comes, and it's still $100.
The wife and kids just had dessert.
....ain't married life fun?
Aye a great story and true.
The wealthy neither earn "income" nor pay the graduated income tax because "income" is primarily referring to wages earned from work. Working-class, middle-class, upper middle-class people are wage-earners and pay the "income" tax.
There are other ways to earn "money" (let's NOT use "income") and not pay graduated rates.
Two examples:
Capital gains: 15%.
Dividends: 15%.
The payroll tax, e.g., which is nearly, I think, over a TRILLION dollar in-take by the U.S. government is 15.3% and the payroll tax STOPS at about 112,000 in "income." Those making more do not pay payroll tax. Social security, medicare, medicaid, etc. There is no "fund" that the payroll tax goes to. Middle-class people pay for these entitlement programs, which work when you eliminate fraud and do not empty the funds for pharmaceutical companies, defense contractors, and so forth.
The Social Security "Trust Fund" is Empty. Most people do not know what a "trust" is. It is beyond my time and interest to explain it. But the U.S. government is supposed to be the "trustee" with a fiduciary relationship to the beneficiaries (here, the taxpayer). If a trustee were to empty a trust as the U.S. government did with YOUR social security, he would be imprisoned for an extremely long time for fraud, larceny, embezzlement, and the list goes on and on. The Social Security Trust Fund was literally looted; it was why Al Gore wanted a "lock box."
The illustration is totally, completely wrong both in terms how "income" is taxed and how the Internal Revenue Code is administered. The Internal Revenue Code GIVES more money through subsidies, preferred rates of taxation, tax credits, deferrals, and so forth than it takes from farms, institutions, corporations, and so forth. The tax code is extremely, and I mean extremely, complex. People spend their entire careers studying the Title 26 of the United States Code.
The internal Revenue GIVES nothing. It only takes.
Sometimes it agrees to take less than what it could have done. That is it's "gift".
Another genius attacking the succesful for being sucessful. Sounds like sour grapes. You know nothing about the system except how to be brainwashed by it.
Another genius attacking the succesful for being sucessful. Sounds like sour grapes. You know nothing about the system except how to be brainwashed by it.
I do not even know what to tell you.
I honestly want an answer to these questions. I do not see where I attack "successful for being successful" and I do not know who or what the "system" is or how I know "how to be brainwashed by it."