This is a VERY simple way to understand the tax laws. Read on -- it
does make you think!!
Let's put tax cuts in terms everyone can understand. Suppose that every
day, ten men go out for dinner. 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 $7, the eighth $12, the
ninth $18, and the tenth man -- the richest -- would pay $59.
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 (in tax language a tax cut).
"Since you are all such good customers," he said, "I'm going to reduce
the cost of your daily meal by $20." So now dinner for the ten only
cost $80.00.
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 -- the paying customers? How could they divvy
up the $20 windfall so that everyone would get his "fair share?"
The six men 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 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 now paid nothing, the sixth
pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid
$12, leaving the tenth man with a bill of $52 instead of his earlier
$59. 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,
pointing to the tenth. "But he got $7!". "Yeah, that's right,"
exclaimed the fifth man, "I only saved a dollar, too, .........It's unfair
that
he got seven times more than me!". "That's true!" shouted the seventh man,"
why should he get $7 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. The system exploits the poor!"
The nine men surrounded the tenth and beat him up. The next night he
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, a little late
what was very important. They were FIFTY-TWO DOLLARS short of
paying the bill!
Imagine that!
And that, boys and girls, journalists and college instructors, is how
the 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 at the table
anymore.
Where would that leave the rest? Unfortunately, most taxing authorities
anywhere cannot seem to grasp this rather straightforward logic!
T. Davies Professor of Accounting & Chair, Division of Accounting and
Business Law The University of South Dakota School of Business
does make you think!!
Let's put tax cuts in terms everyone can understand. Suppose that every
day, ten men go out for dinner. 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 $7, the eighth $12, the
ninth $18, and the tenth man -- the richest -- would pay $59.
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 (in tax language a tax cut).
"Since you are all such good customers," he said, "I'm going to reduce
the cost of your daily meal by $20." So now dinner for the ten only
cost $80.00.
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 -- the paying customers? How could they divvy
up the $20 windfall so that everyone would get his "fair share?"
The six men 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 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 now paid nothing, the sixth
pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid
$12, leaving the tenth man with a bill of $52 instead of his earlier
$59. 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,
pointing to the tenth. "But he got $7!". "Yeah, that's right,"
exclaimed the fifth man, "I only saved a dollar, too, .........It's unfair
that
he got seven times more than me!". "That's true!" shouted the seventh man,"
why should he get $7 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. The system exploits the poor!"
The nine men surrounded the tenth and beat him up. The next night he
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, a little late
what was very important. They were FIFTY-TWO DOLLARS short of
paying the bill!
Imagine that!
And that, boys and girls, journalists and college instructors, is how
the 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 at the table
anymore.
Where would that leave the rest? Unfortunately, most taxing authorities
anywhere cannot seem to grasp this rather straightforward logic!
T. Davies Professor of Accounting & Chair, Division of Accounting and
Business Law The University of South Dakota School of Business
