just john

Join Date 10/2004

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Tax System Explained

don't beat up the wealthy for being wealthy

I'm usually not one for passing on forwarded emails but I thought this one was worthy given the upcoming election and some recent debates here on JU.

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 got' '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, ladies and gentlemen, 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 drinking overseas where the atmosphere is somewhat friendlier.

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The ten men drank in the bar every day and seemed quite happy with the arrangement

Paying for beer is like paying taxes? and they just pay those 4 out of generosity .... get real please.

Lets try a more realistic one in which the situation is very similar to getting paid for something you do along with others and all share in the effort.

Ten men live on an island growing peanuts. Together they produce 500 lbs of peanuts. They eat some; used some for fueling their boat’s generator for heat and light. The rest they sold to the people across the bay. They use paddles to move the boat to their market. All 10 men are needed to move the boat to the other side.

4 men, each produces 5 lbs of peanuts

1 man produces 10 lbs of peanuts

1 man produces 20 lbs of peanuts

2 men, each produces 30 lbs of peanuts

1 man produces 40 lbs of peanuts

1 man produces 350 lbs of peanuts

Each man needs to eat 4 lbs of peanuts during the trip

They need 100 lbs for the generator. They agreed to get the 100 lbs as follows:

First 4 men 0

5^th man 1

6^th man 2

7^th, 8^th 12 (6 each)

9^th 10

10^th 75

After a while … the 10^th man kept complaining that he is paying too much and there is a lot of waste in the generator’s operation and its use of peanuts must be reduced. Because he is the powerful one, he decided to cut the total need of peanuts by 25 lbs and his frinds in the court decided that it is done as follows:

Cut 0 from 5^th man

Cut 1 from 6th man

Cut 2 from each of 7^th and 8^th

Cut 5 from 9^th

Cut 15 from 10^th

As a result of that cut, the generator output decreased, the boat became colder and darker, and everybody ate a little more to warm themselves up as a result ..

Now each man needed 5 lbs to survive … with the following consequences:

First 4 men had nothing left to sell … and refused to participate

The boat still needs 10 to move the peanuts to the other side and sell it. Now they cant move the boat, the peanut got spoiled … they lost their crop and the people on the other side got hungry …

World Wide disaster ….. SOUNDS FAMILIAR nowadays?????

no one beat anyone, no one is paying others for nothing, no one is forcing anyone to do anything except what is needed to move the goods. and the powerful decide what is needed and what is the best course of action. Greed and bad judgment interferred .... the natural results achieved. ....

It is a fantacy to think the world is going as some think it is .... that 10th man didnt realize that those four who were merely surviving are needed to move the boat. their goods were almost nonexistent, they didnt pay for the cost of moving the boat ... and that was the 10th man's problem ... how in the world should they benefit (they sell their only lb that is left after their basic needs) without paying the cost of the boat.....

now he got all his crop ruined ... greed and poor judgment always lead to disasters ... day dream in your own world as you wish ... the reality and natural balance in life always impose themselves... no matter what

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Sounds like they need Obama to "spread" the 10th mans peanut wealth in this socialist country where you can grow lbs of peanuts and expect to move them for nothing.

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John -you hit it on the head.

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Paying for beer is like paying taxes? and they just pay those 4 out of generosity .... get real please.

You know, the thing I like about JU is the intelligence of both sides of the issue displayed by many here. You are not one of them.

You are just an idiot. That is descriptive, not inflamatory.

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grow lbs of peanuts and expect to move them for nothing.

for nothing??? their effort proved crucial for the system ... it collapsed without them.

It is amazing how we can twist things and ignore the facts ibfront of our eyes ... just to argue a point. How sad !!!!

You are just an idiot. That is descriptive, not inflamatory.

thanks a lot ... very informative .... your intellect is obvious from what you have to say. when you have no response ... you resort to "descriptive" statements... thanks again

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Quoting ThinkAloud,

comment 5

their effort proved crucial for the system ... it collapsed without them.

Nope, it's not crucial for the system. The tenth man grows 350 lbs of peanuts. He need only pay the first four men five lbs of peanuts to help his harvest, 100 lbs to run the boat and he nets 230 lbs of peanuts. The first four guys are happy to work, the tenth man still makes a profit and the other five guys are forced out of the market driving up the price because of a near 25% decrease in supply.

You seem to think we need the little guy to make things happen. What you are missing is that the laws of supply and demand now make those first four men (eventually replaced by illegals who will do it for three pounds) work their ass off because their pound of peanuts is worth a lot more. Drop supply on any product in the world by 25% and see what happens to prices (hint - OPEC does this shit all the time).

We could twist your view all day long but in the end if we beat up the guy who is making it work for the little guy, he will only find a way to make more money... even if it means crushing a few people out of the market entirely.

The original piece was meant less as fact and more as humor. My mistake was putting this in politics and thinking someone looking at political articles had a sense of humor.

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You know, the thing I like about JU is the intelligence of both sides of the issue displayed by many here. You are not one of them.

You are just an idiot. That is descriptive, not inflamatory

You do yourself little credit posting something like that Guy - I know you can post better than that - if you're going to call someone an idiot, at least give a few lines detailing why you feel it is an accurate description, or else it comes off as inflamatory.

greed and poor judgment always lead to disasters

But not greed by itself. In fact the thing that leads to disasters is typically poor judgement. In your peanut case, the rich man should have acted in his best interests, which he didn't do.

Anyway to extend your peanut analogy a bit further, after realising that a 25% reduction in generator output saves him 15 (and a total saving of 25), but also costs the poorest workers 1 peanut (and a total cost of 10), the rich guy decides that he will pay the poor 1 peanut to help move his boat. They continue to move the boat across to sell the peanuts, and they have realised a net gain, seeing as they have saved 25 peanuts less the 10 needed to compensate for the loss of heat, meaning a gain of 15 spread across the group. The poor end up the same as before, the 5th guy loses a peanut, 6th saves 0, 7+8 1 each, 9 4, and 10 10. To look at this a bit clearer, lets say that the 5th guy also gets given 1 peanut for his services, that means that everyone is now either as good as they were before, or better off, in other words you now have a more efficient outcome!

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Quoting maudlin27,

reply 7

To look at this a bit clearer, lets say that the 5th guy also gets given 1 peanut for his services, that means that everyone is now either as good as they were before, or better off, in other words you now have a more efficient outcome!

The problem with your peanuts analogy is that the rich guy has to suffer for a small net gain (0.014%). Why would he make himself to suffer for almost no difference in earned revenue? It makes much more sense to cut someone out of the equation and make more money.

It's a stretch to think that someone would intentionally make a few pennies more just to help out the little guy. Some not for profit groups are that altruistic but I don't think you are going to find it very often in big business.

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