How Tax Cuts Work

A simple lesson in How Tax Cuts Work

Sometimes politicians, journalists and others 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, I hope the following will help. Please read it carefully.

Let’s put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner 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 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.” Dinner 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 eat 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 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 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 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 anymore. In fact, they might start eating overseas where the atmosphere is somewhat friendlier.

Only in America (the Canadian version)

This is so sad; from a proud, strong country to the laughing stock of the world.

I have *not* fact-checked the numbers. I might, if I find I have spare time, but most of it doesn’t need checking, it’s common knowledge. I received this via an email. It is not my own work-product.

Canadians’ Version of David Letterman’s Top 10. Just makes you want to shake your head in disbelief, and just maybe choke someone in charge.

This is Canada ‘s Top Ten List of America ‘s Stupidity.

# 10
Only in America … could politicians talk about the greed of the rich at a $35,000.00 per plate Obama campaign fund-raising event.

# 09
Only in America… could people claim that the government still discriminates against black Americans when they have a black President, a black Attorney General and roughly 20% of the federal workforce is black while only 14% of the population is black, 40+% of all federal entitlements goes to black Americans – 3X the rate that go to whites, 5X the rate that go to Hispanic

# 08
Only in America… could they have had the two people most responsible for our tax code, Timothy Geithner (the head of the Treasury Department) and Charles Rangel (who once ran the Ways and Means Committee), BOTH turn out to be tax cheats who are in favor of higher taxes.

# 07
Only in America… can they have terrorists kill people in the name of Allah and have the media primarily react by fretting that Muslims might be harmed by the backlash.

# 06
Only in America… would they make people who want to legally become American citizens wait for years in their home countries and pay tens of thousands of dollars for the privilege, while they discuss letting anyone who sneaks into the country illegally just ‘magically’ become American citizens. (this one is BS, there isn’t anything being proposed for automatic citizenship, just amnesty)

# 05
Only in America … could the people who believe in balancing the budget and sticking by the country’s Constitution be called EXTREMISTS

# 04
Only in America … could you need to present a driver’s license to cash a check or buy alcohol, but not to vote.

# 03
Only in America … could people demand the government investigate whether oil companies are gouging the public because the price of gas went up when the return on equity invested in a major U.S. Oil company (Marathon Oil) is less than half of a company making tennis shoes  (Nike).

# 02
Only in America… could you collect more tax dollars from the people than any nation in recorded history, still spend a Trillion dollars more than it has per year – for total spending of $7 Million PER MINUTE, and complain that it doesn’t have nearly enough money.

# 01
Only in America…. could the rich people – who pay 86% of all income taxes – be accused of not paying their “fair share” by people who don’t pay any income taxes at all.

Bonus:
Only in America do you have to pass a drug test to get a pay check, yet any crack head can get their welfare check no questions asked.

Skewed values from Washington

Received in an email today:

Two-star Major General Harold Greene was killed in Afghanistan on August 8, 2014 while serving his country with pride for 34 years.

He was the highest ranking officer in the military killed in action since the Vietnam war, since 1972.

President Obama has not mentioned anything publicly regarding this highly-decorated soldier yet he spoke highly of Robin Williams who committed suicide.

Greene was buried August 14 in the Arlington National Cemetery. Neither the President, Vice President, Secretary of State nor Secretary of Defense attended the funeral. President Obama was on vacation, playing golf at Martha’s Vineyard.

No flags were ordered to half-mast, yet they were for Whitney Houston who also committed suicide.

I find this very offensive and disrespectful to the veterans who have served our great country.

But then again, this not surprise me. What do you expect from someone who has never served and has no honor?

David Eads
USMC 1971-1973