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.

Illegal Status, Please

I don’t know if this was ever really sent, but it’s pretty darned funny, IMO.

The Honorable Wydon
731 Hart Senate Office Building
Phone (202) 224 3254
Washington DC , 20510

Dear Senator Wydon,

As a native Oregonian and excellent customer of the Internal Revenue Service, I am writing to ask for your assistance. I have contacted the Department of Homeland Security in an effort to determine the process for becoming an illegal alien and they referred me to you.

My primary reason for wishing to change my status from U.S. Citizen to illegal alien stems from the bill which was recently passed by the Senate and for which you voted. If my understanding of this bill is accurate, as an illegal alien who has been in the United States for five years, all I need to do to become a citizen is to pay a $2,000 fine and income taxes for only three of the last five years. I know a good deal when I see one and I am anxious to get the process started before everyone figures it out.

Simply put, those of us who have been here legally have had to pay taxes every year so I’m excited about the prospect of avoiding two years of taxes in return for paying a $2,000 fine. Is there any way that I can apply to be illegal retroactively? This would yield an excellent result for me and my family because we paid heavy taxes in 2004 and 2005.

Additionally, as an illegal alien I could begin using the local emergency room as my primary health care provider. Once I have stopped paying premiums for medical insurance, my accountant figures I could save almost $10,000 a year.

Another benefit in gaining illegal status would be that my daughter would receive preferential treatment relative to her law school applications, as well as ‘in-state’ tuition rates for many colleges throughout the United States for my son.

Lastly, I understand that illegal status would relieve me of the burden of renewing my driver’s license and making those burdensome car insurance premiums. This is very important to me, given that I still have college age children driving my car.

If you would provide me with an outline of the process to become illegal (retroactively if possible) and copies of the necessary forms, I would be most appreciative. Thank you for your assistance

Your Loyal Constituent, (hoping to reach ‘illegal alien’ status rather than just a bonafide citizen of the USA, soon).

Dale B Rilyeu
Lebanon, Or

When is enough enough?

$30,000 for a research report on prairie dogs?

Must be for the vast suburban development going on in Montana.

In the grand scheme of things, $30,000 out of the federal budget doesn’t seem like a lot of money, but I want accountability! Is this expense REALLY necessary? Montana is just about as rustic and undeveloped of an area as can be, so what’s this information REALLY going to be used for? Are they just testing the satellite images for quality? Or was this just a way to funnel some money to someone in the Big Sky state?

Property Tax Appraisals

I’d been “eagerly” awaiting my annual property tax assessment to make sure the city wasn’t overvaluing our house since the market is in a slump.

If one intends to contest the amount, it has to be done by May 1st.

Having not received it in the mail yet, though I got a “bill” for the property taxes with no value, just a statement that it was being paid by my mortgage company, I decided to call the assessors office.

I was surprised to find out that they didn’t mail me one since the value hadn’t changed. I see that as a problem for two reasons: 1) they aren’t notifying me of the amount, thus denying me the opportunity to contest it, and, 2) last year’s assessment was on the high side (and the only house in my neighborhood that has sold in the past year was about $40k less than my assessment and that was with tons of concessions on her part).

Ug! I’m waiting for the appraiser to call me back.

Following up… The city appraiser called me back as promised. He told me only one house in my neighborhood actually sold in 2008 and it sold for the assessed amount. I’ve missed the deadline at this point, but I’m still gonna do my own research as I’m not sure I believe that only one house sold. I know when we bought our house back in 1998, no houses had sold recently in our neighborhood, so they expanded their search about 3 miles. And they had to expand the search for several years in order to INCREASE our assessment every year. Seems like they changed the rules to their benefit.