The US Tax system explained ... in Beer

[smellyfinger]

The debate between liberals and conservatives continues around the tax system ... one side complains that the other gets all the breaks .. the other side complains that almost 40% of the population gets away for free .. here is the system explained in a user-friendly way (copy/paste of course)

THE TAX SYSTEM EXPLAINED IN BEER

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 ball.
“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 men would 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? 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 a higher percentage the poorer he was, to follow the principle
of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

“I only got a dollar out of the $20 saving,” 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 benefit 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. This new tax 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 their 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 government ministers, is how our tax system works.
The people who already pay the highest taxes will naturally 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.

[motowner]

:rep:

Wish I could rep you twice for this!

[Premi]

:rep:

Wish I could rep you twice for this!


dont worry mota pai ... I did.

[dollyg]

great post smelly! :up:

[Napolean]

Noice way of explaining.

[sunnykode]

Nice
:rep:

[swami]

Hope to see more rich people on this thread with :rep:

:D

[BABU_HYDERABADI]

smelly baba you are wrong with the figures

LINK (http://www.forbes.com/sites/janetnovack/2011/10/12/warren-buffets-effective-federal-income-tax-rate-is-just-11/)
According to a letter Buffett sent to Rep. Tim Huelskamp (R-Kansas) that the Congressman posted here, the billionaire had adjusted gross income in 2010 of $62,855,038, taxable income of $39,814,784, and a federal income tax bill of$6,923,494. That makes his effective tax rate, as a percentage of AGI, just 11.06%, compared to an average effective rate in 2008 (the most recent year available) of 18.1% of AGI for the 400 taxpayers with the largest incomes, according to figures reported by the Internal Revenue Service. (Huelskamp has echoed The Wall Street Journal editorial page’s demand that Buffett release his full return—a step Buffett says he’ll happily take when Rupert Murdoch, chairman and CEO of WSJ owner News Corp., releases his tax return too.)

warren buffett pays a net income tax of 11% babu ji not 50+% as shown in the figures by you.
now you should also tell how much of wealth as a % is concentrated in the hands of the rich, and what is the % of total income of all people of USA and then we can talk if the amount paid by the rich folks as a % of total tax paid is justified or not.
MBA folks are known to throw around statistics around without revealing the actual data.


BTW in this analogy one thing was missing, the rich the person is, the more the beer he drinks

[badriprasad]

Hyderabadiji ... piss at the party ... did you have to? Story, anecdote, or analogy ... whatever it is ... does sound like bells to the whistle. Good one.


:D @ Smellyji ... bachho ke aage been baja rahe aap?

[EkateesMaarKhan]

And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).



2+5+9+14+49 = 79.
Who will pay remaining 1$?
Bar man?
From his already reduced profits?
Or outsource the production of beer to china to recoup profit?


Who pays subsidy of 20$?
Govt?
How?
Printing more money?

Whats new in this user-friendly way of explanation?

[chaiwaala]

Hope to see more rich people on this thread with :rep:

:D

Wogay, brother. As you wish.

:rep:

[GameOn]

Suppose that every day, ten men go out for beer and........................
.................................................................................
The nine men surrounded the tenth and beat him up.

......................................


you forgot to mention the real important bit...the chhammiyas at the bar were all winking at and thumkaoing their tushies for the 10th guy ONLY...

thats the real reason he got beat up by the other 9...

with guys and drinks..everyone becomes everyones best brother after about the 1st drink and half.... and the only way they can fight after that, is over chhammiyas...past or present...even if it is the chick on the centrespread of the latest playboy...

iss baat ke liye best place is saudi...getting to drink is a big enough achievement and perhaps thats why its tax free too?you could end up fighting over a cheeka whose actually a drag

[soniya 2]

Swami ab sirf mujhe hi rep points de ga. Chalo shabash deekha do sab ko:)

[Sane Less]

dont worry mota pai ... I did.
This I do not understand... kya yaar, apna duties bhool kar you got on to the repping band-wagon:confused:

And the surprise is, this joke was posted earlier by... khud Smellyiyengar pai:D

[soniya 2]

This I do not understand... kya yaar, apna duties bhool kar you got on to the repping band-wagon:confused:

And the surprise is, this joke was posted earlier by... khud Smellyiyengar pai:D

Really ?

Boo !

rep rep

[Premi]

Swami ab sirf mujhe hi rep points de ga. Chalo shabash deekha do sab ko:)


uthega mera dost kuchh kar ke dikhayega


uthega mera dost kuchh kar ke dikhayega
....

:rotfl:

[echarcha]

smelly, awesome post! :rep:

[smellyfinger]

smelly baba you are wrong with the figures

warren buffett pays a net income tax of 11% babu ji not 50+% as shown in the figures by you.
now you should also tell how much of wealth as a % is concentrated in the hands of the rich, and what is the % of total income of all people of USA and then we can talk if the amount paid by the rich folks as a % of total tax paid is justified or not.
MBA folks are known to throw around statistics around without revealing the actual data.


BTW in this analogy one thing was missing, the rich the person is, the more the beer he drinks

Babuji

You are missing the point. Sticking with the analogy, the rich guys pays $59 for the beer, not 59% of his income. Which means that effectively he may be paying a very small percentage of his income for that night out but is still carrying the load of the other guys. In your numbers, Warren Buffett pays over $6M in taxes. Do you pay that much? I certainly dont. Why do you care that it is only 11% of his income? He still pays 200 times more than I pay for the same benefits from the government (same amount of beer). Look at the major govt spending .. Medicare, SS, defense, infrastructure.. does he get any more benefit out of these things than you or I do? Probably less, since we wont draw SS or use the medicare system. Look at it from a pure dollar standpoint and not a percent standpoint.

I guess that is the difference between liberal and conservative ideology. The government provides a service. Their role is not to redistribute wealth. Think of the govt as any other service provider. How would you feel if you went to book airline tickets and you had to pay $2000 for a ticket whereas 40% of the people on the plane got their ticket for free? Why not make everything we buy a percent of income? You go to grocery store, and based on your income that loaf of bread may be free - or may cost you $200!! Sounds ridiculous?? It isnt - that is exactly what is happening now with the tax system. In a pure capitalist system everyone would receive an equal tax "bill" from the gevernment. Understand that this is not practical or feasible without creating a rich and a poor state within the country.

The tax system needs a major overhaul. It needs to get everyone to pay their fair share - across the board. No one should get a free ride. And the super rich should not be able to hide behind tax rules. But I am sick and tired of everyone complaining that the rich are the ones getting all the breaks. That is crap.

[motowner]

I agree with the analogy in principal, but one problem I have with the tax system is that capital gains is taxed at only about 10% with income tax is much higher. This leaves a gaping loophole for the super rich to use to their advantage. Most of their income is from capital gains, and that's why we see them drawing token salary of $1 or sometimes no salary. I am in favor of a flat tax rate across the board for all income levels.

[smellyfinger]

I agree with the analogy in principal, but one problem I have with the tax system is that capital gains is taxed at only about 10% with income tax is much higher. This leaves a gaping loophole for the super rich to use to their advantage. Most of their income is from capital gains, and that's why we see them drawing token salary of $1 or sometimes no salary. I am in favor of a flat tax rate across the board for all income levels.

This particular analogy dealt with where the tax breaks go .. and not on taxataion in general. However, your point is valid. Capital gains taxes need to go up .. whereas estate taxes need to come down (or disappear). I dont think the government should get to tax the same money twice.

Regarding capital gains, if you treat it like income, then on the flip side, capital losses should be treated like loss of income. Meaning .. no more $3000 limit in deducting capital losses in a year. If you lose $50K in the stock market, then you should be able to write that whole thing off in the same year (deduct from your income). Any extra gets to be rolled over.

[BABU_HYDERABADI]

Babuji

You are missing the point. Sticking with the analogy, the rich guys pays $59 for the beer, not 59% of his income. Which means that effectively he may be paying a very small percentage of his income for that night out but is still carrying the load of the other guys. In your numbers, Warren Buffett pays over $6M in taxes. Do you pay that much? I certainly dont. Why do you care that it is only 11% of his income? He still pays 200 times more than I pay for the same benefits from the government (same amount of beer). Look at the major govt spending .. Medicare, SS, defense, infrastructure.. does he get any more benefit out of these things than you or I do? Probably less, since we wont draw SS or use the medicare system. Look at it from a pure dollar standpoint and not a percent standpoint.

I guess that is the difference between liberal and conservative ideology. The government provides a service. Their role is not to redistribute wealth. Think of the govt as any other service provider. How would you feel if you went to book airline tickets and you had to pay $2000 for a ticket whereas 40% of the people on the plane got their ticket for free? Why not make everything we buy a percent of income? You go to grocery store, and based on your income that loaf of bread may be free - or may cost you $200!! Sounds ridiculous?? It isnt - that is exactly what is happening now with the tax system. In a pure capitalist system everyone would receive an equal tax "bill" from the gevernment. Understand that this is not practical or feasible without creating a rich and a poor state within the country.

The tax system needs a major overhaul. It needs to get everyone to pay their fair share - across the board. No one should get a free ride. And the super rich should not be able to hide behind tax rules. But I am sick and tired of everyone complaining that the rich are the ones getting all the breaks. That is crap.

smelly bhai, warren saheb is not making money out of thin air, he is investing his money where he needs people who have been educated by govt(atleast till 12th grade in USA) to work for the company that he invests money in.

When you are comparing paying taxes to paying for air tickets you are comparing apples to oranges.

I do accept what you wrote in the last para that tax code is in a major mess. It needs a major overhaul. Rich people ought to pay at least the same percentage of their yearly income as a blue collar worker pays, if some one who earns 70K pays around 28% of his income as tax, then for a person like warren to pay only 11% of his yearly income as tax is a crime against nation.

[PeaceSeeker]

The people who already pay the highest taxes will naturally get the [/COLOR]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.

if u earn from a particular country, u have to pay taxes as per its laws. u can choose to drink anywhere.

[smellyfinger]

if u earn from a particular country, u have to pay taxes as per its laws. u can choose to drink anywhere.

Dont worry about it dude ... :D

[swami]

Another bewda thread for all the bewdas of EC:D

[Mike Mandbuddi]

I agree with the analogy in principal, but one problem I have with the tax system is that capital gains is taxed at only about 10% with income tax is much higher. This leaves a gaping loophole for the super rich to use to their advantage. Most of their income is from capital gains, and that's why we see them drawing token salary of $1 or sometimes no salary. I am in favor of a flat tax rate across the board for all income levels.

Mister Smellyfinger is trying to make members of www.echarcha.com appear like bunch of commies or paupers (like me). Rich members like Mister Amthalal Mister Premi Mister Swami Mister etc etc r not insulted by his posts is a big surprise to me.

How do I award red box?

[swami]

Red Box Master Premi,please help our Jamnagar ka Model :D


How do I award red box?