djsusm

Here is something that my Wealth Management Professor handed out in class. Its quite interesting...

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With all the talk about Bush’s tax plan – I thought this illustration might help those who still think the wealthy get all the tax breaks. Let’s put tax cuts in terms everyone can understand. Suppose that everyday, ten people go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay out taxes, it would go something like this:
The first four people – the poorest – would pay nothing;
The fifth would pay $1;
The sixth would pay $3;
The seventh $7;
The eighth $12;
The ninth $18;
The tenth person – the richest – would pay $59.

That’s what they decided to do. The ten people ate dinner in the restaurant every day and seemed quite happy with the arrangement – until one day, the owner of the restaurant threw them a curveball.
“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily meal by $20.” (for those NOT following, this is called a tax cut).
So now, dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes. So the first four people 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/her “fair share?” The six people realized that the $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth and sixth persons would end up being paid to eat their meal. So the restaurant owner suggested the it would be fair to reduce each paying person’s bill by roughly the same amount percentage-wise, and he proceeded to work out the amounts each would pay. The fifth person paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, and the ninth paid $12, leaving the tenth person with a bill of $52 instead of the earlier $59. Each of the six was better off than before. And the fist four continued to eat for free. But once outside the restaurant, the people began to compare their savings.
“I only got a dollar out of the $20,” declared the sixth person. They pointed to the tenth. “But they got $7!”
“Yeah, that’s right,” exclaimed the fifth person. “I only saved a dollar, too. Its unfair that he got seven times more than me!”
“That’s true!” shouted the seventh person. “Why should he get $7 back when I got only $2? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four people in unison, “We didn’t get anything at all. The system exploits the poor!”
The nine people surrounded the tenth and beat him to a pulp. The next night, he didn’t show up for dinner, so the nine sat down and ate without him. But when it came to pay the bill, they were $52 short! And that, ladies and gentlemen, is how the US tax system works.

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VTGreg

I've seen that analogy before. The US tax system is just a form of income redistribution.

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It only ends once... Anything that happens before that is just progress.

Courage is not the absence of fear but rather the judgment that something else is more important than fear.

sbp

I remember back in college some friends used to say "the rich" should have it "stuck to them". Now, a few years down the road after college with them earning decent money {55k and 115k respectively}, they are complaining about being reamed with taxes. As a kindhearted person I remind them of those college days of yonder and like to tell them, "hey you are one of the rich, so stop complaining you rich bastards!"

cheapchinese

do the rich really pay the most taxes???
just wondering.. not making a statment here

DaFunkyUnit

I always thought people who are loaded, i.e. filthy rich, are so because they know how to dodge taxes...

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Cubsfan

Looks like a kind of old article, but the numbers might suprise you.
http://www.straightdope.com/classics/a5_139.html