tax system explained
Worth taking the time
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.
"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 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? 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 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 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 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 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 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, this 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 anymore.
In fact, they might start drinking overseas where the atmosphere is somewhat
friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics
University of Georgia
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible
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.
"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 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? 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 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 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 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 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 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, this 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 anymore.
In fact, they might start drinking overseas where the atmosphere is somewhat
friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics
University of Georgia
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible
Comments
That being said, the story is true, as far as it goes.
It is so weird that I like you so much, and yet HATE everything that comes out of your mouth.
Flat tax is a terrible idea...even Jesus thought so.
Taxes are for poor people.
Please explain . . .
FAIL. The rich pay a lot of tax. Maybe not INCOME tax, but tax nonetheless.
Can you explain how they find a "way around" property tax, sales tax, land transfer tax, taxes on their cars, jets, boats, whatever . . .
Our tax structure is based on more than simply the Income Tax. The rich pay considerably more than you or I when it comes to consumption taxes.
all that you mention is write offs for them;), come back closer to tax time, I am sure I will have heard more on what they do
Strike two . . . while some items may indeed be written off at tax time, none of them are 100% (I am pretty sure). Also, how does one "write off" the taxes paid when you BUY the cars, jets, boats, etc.?
Sorry, Philli, but I know self employed people, and the list of write-offs is not as extensive as you think it is.
sorry Milo, so do I, that's what I am talking about, just look at government and olg officials really.
DO NOT do something to get you into a pissing match with CRA. You will lose.
YouTube - Tom Brokaw interviews Warren Buffett
I hate paying taxes and have seriously considered moving out of the country to somewhere with a better rate.
However that being said I think our tax system definitely does need overhauling.. I would be in favour more of a flatter tax system, more heavily based on consumption.. I am also in business for myself and can assure you the small business man gets no breaks...
Realizing we will never go to a straight consumption based tax system, a flat tax component is a happy medium ground that can be modified to make allowances for the poorest in society (Recognizing that having a plasma screen TV, internet, and a couple cell phones in the home makes you, if not rich, something other than poor).
Oh, and this idea that the US system is somehow preferrable to ours is demonstrably false, at least in terms of how much income you are left with when comparing apples to apples.
This.
But good luck ever getting them to understand.
they buy this with their business's and write them off. and they write off against personal income from the bussiness and get taxed less on bussiness income.
Please re-read WildBill's earlier post. As someone who has had a relative need to come up with somewhere north of $20k for the CRA due to disallowed "write-offs", you need to be very careful in what you try to claim.
Not in Canada you don't, at least not legally....
Not just exaggerated but the ever popular super dooper OVER-exaggerated. In this case it's even better because it's only "slightly" super dooper. Why use 1 word when you can use 4!
self employed is a different category than the guys who own yachts or whatever you were saying. i would wager to say the the multi-millionaires of this country are happy with our tax laws.
what are the poker tax laws for my winnings (pirate bounty)...?
yes but they just do it creatively, like sponsoring a jetski competitor. or putting your business on your hummer, you would write off the lease interest or something, im sure you know. its not 100% but if your business is doing well your money could be made to be worth more than the working dollar. i dunno i think canada's laws are very penetrable and usable for the working class, and powerful for the wealthy.
damn i gotta get back to the poker pages,
they pay taxes. but for every dollar they earn they keep more than you do for yours. and the more you make the harder you get taxed (higher bracket). a successful business owner will pay less taxes on income the higher he goes.
a little different from my view but close enough. to point at the same issue in a different way....democracy isn't democracy when stupid people are allowed to vote!
I get frustrated at the amount of tax that I pay and that it goes to very little. I also don't think I should be paying more tax than people that make less than I do.
Example:
Bob makes $40 000 and pays 15% federal tax or in dollars $6000.
Jill makes $100 000 and pays 26% federal tax or in dollars $26 000.
And I didn't include Provincial tax either or CPP or EI. In all cases Jill pays more again.
I think it would be a lot better if there was a flat amount.
How is this fair? Does Jill use more services than Bob? Jill makes twice as much as Bob but pays 4x as tax.
If we all paid 15% or something along those lines it would seem to be more fair. I know that I am just tired of paying taxes everywhere.
I don't have loopholes or write offs. I pay.
While I know that there are many people that need the break and the services that our government provides, there are many more that take advantage of the system. I have seen the type of guy that works the minimum hours to qualify for EI or Welfare and then uses it until it runs out and then starts all over.
Flat tax will definitely cut available resources for underprivelleged people, perhaps the Haves in this thread would suggest what they would take from the Have Nots, were their idea to be implemented.
Also a lot of the resources that could be spent on the "have nots" are consumed by either poor planning, poor programs or corrupt Government.
For example:
You have friend who needed money and you gave him some since you knew he was in trouble. He needed $500 for food and rent and that's what you gave him.
As it turns out he spent $25 on food, $75 on rent, $100 was given to someone else to administer his money, $50 vanished and $250 was to pay off another debt. Now he comes back for more and you realise that that it wasn't he fault so you give him another $500 and the same thing happens. Sooner or later you don't want to give the money since it is not going to what it should be.
Look at Canada now with just E-Health and OLG. Millions spent and the citizens have to pay for it and we have nothing to show. However, a few people are walking away with millions of dollars for themselves.
I look at tax payer money spent on the Olympics and think that could have fed a hungry family for a lifetime 10x over. The list goes on and on. I am tired of giving so much to the Government only to have it mispent or stolen.
There is a long list of issues with the tax system but just saying it goes to the "have nots" is just plain wrong. Very very little actual goes to those that need it.