Found this pretty good example of how taxes work.
Here Is How It Looks
For Everyone Who Thinks The “Rich” Must Pay More
Suppose that every day
ten men go out for beer, and the bill for all ten comes to $100.00.
If they were to pay their bill the way we pay our taxes it would look
something like this:
The first four men (the
poorest) would pay nothing.
The fifth man would pay
The sixth man would pay
The seventh man would
The eighth man would pay
The ninth man would pay
The tenth man (the
richest) would pay $59.00.
So that is what they
decided to do. The ten men drank in the bar every day and all seemed
quite happy with their arrangement; that is until one day when the
bar owner threw them a curve-ball.
“Since you all are
such good customers,” he said, “I am going to reduce the cost of
your daily beer by $20.00.” The drinks for the ten men would now
only be $80.00.
The group still wanted
to pay for their beer the same way we pay taxes. So the first four
men (the poorest) were unaffected. They would still drink beer for
free. But, what about the other six men? The ones actually PAYING for
the beer they all drank? How could they divide the $20.00 windfall so
each of the men would get his fair share? They realized that dividing
$20.00 six ways was $3.33. But if they were to subtract that amount
from everybody's share, then the fifth and sixth man would end up
getting paid to drink beer!
So the bar owner
suggested that it would be the most fair to reduce each man's bill by
a higher percentage the poorer he was, to follow the principle of the
tax system they had been using, and proceeded to work out the amounts
he suggested each man should pay as follows:
The first four (the
poorest) would still drink for free.
The fifth man though,
now like the first four would pay nothing. (100% savings)
The sixth man would now
pay $2.00 instead of $3.00 (33 1/3 % savings)
The seventh man would
now pay $5.00 instead of $7.00 (28 1/2% savings)
The eighth man would now
pay $9.00 instead of $12.00 (25% savings)
The ninth man would now
pay $14.00 instead of $18.00 (22% savings)
The tenth man would now
pay $50.00 instead of $59.00 (15% savings)
Each of the six men were
better off than before, and the first four continued to drink for
free. But once outside the men began to compare their savings.
“I only got a dollar
out of the $20.00 savings,” declared the sixth man. Pointing to the
tenth man he said, “But he got $9.00!”
“Hey, that's right,”
exclaimed the fifth man. “I only saved a dollar too. That's unfair
that he got nine times more benefit than I did!”
shouted the seventh man, “Why should he get back $9.00 when I only
got back $2.00? The rich get ALL the breaks!”
“Wait just a minute,”
screamed the first four men in unison, “We didn't get back anything
at all. This system exploits the poor!”
So the nine men
surrounded the tenth man and beat him up.
The next night the tenth
man did not show up for drinks, naturally. So the nine men sat down
and drank their beers without the tenth man. But when the time came
to pay the bill they discovered something very important. They didn't
even between all nine of them have enough money to even pay one-half
of the bill.
And that is basically
how the tax system works. The people who already pay the highest
taxes will naturally get the most benefit from any tax reduction. Tax
them too much, attack them for being wealthy, and they just might not
show up any more. In fact they may just start drinking elsewhere
where the atmosphere is more friendly.
David R. Kamerchen, PhD.
Professor of Economics
For those who understand,
no explanation is needed.
For those who do not
understand, no explanation is possible.