Friday, November 14, 2008

Obama's Tax Plan or What Will Happen To The Rich

I came across this clever analogy regarding Obama's proposed tax plan. This has been circulating the Internet for quite a while, and no-one knows who wrote it, but it does explain, in layman's terms, what happens when you tax the rich.

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!"

''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, 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 drinking overseas where the atmosphere is somewhat friendlier.

The same goes for corporate taxation. What's to stop some company from picking up roots and planting them in a country with major tax incentives, like Ireland. That's what happened to the U.S. film and commercial industry; production companies shoot their projects in the states and countries that offer the most tax incentives. Canada has a booming film industry with great incentives, and so we've lost a great amount of film production to Canada and other countries.

If you think the unemployment rate is high now, wait until all those overly taxed corporations and the rich move their operations to other lands. It doesn't take a genius to figure that out.


brenda cox giguere said...

Concise brilliance-- thank you. It's too late for this illustration to have an effect on my dad and sister, but I'll bet it could open a few younger eyes.

Pamela D. Hart said...

I saw this a few weeks back. I didn't need the analogy. But I wonder if it would've changed any of the Obama supporter's minds?

Incognito said...

BRENDA: Yeah, whoever wrote this was brilliant. Unfortunately, it's too late because when all the corporations ship out, it's going to be a long time before they move back.

PAMELADHART: I didn't either, and not sure if it would have. I think they had their heads so stuck in the sand, they would have been too blinded to see the truth.

Frasypoo said...

I had never understood this till a cousin showed me something similar to this.
She had to close her company a month ago and said that if Obama gets into office she would never be able to get back on her feet.

The Vegas Art Guy said...

The corporate rate in the USA is already one of the highest in the world and yet that's not enough?

Pat Jenkins said...

laymen's terms? i couldn't understand this for nothin'.. he he!! it also proves incog that if the top end contiue to have to "share" more of load they will also run out quicker. meaning NOBODY will have anything. i dare say that is how he wants it though....

WomanHonorThyself said...

wringing my hands here..sigh*

Anonymous said...

Thanks Incog, that was really cool

Biased Girl said...

It's enough to drive you to Drink.:)

calicobebop said...

What a great analogy. I confess, I'm to the point where I'm thinking about "drinking overseas" myself. I'm glad I stumbled across your blog.

Zack R said...

Yes-- it's a classic. Should be forwarded far and wide, taught in elementary schools, and made into a film. David Zucker could do a smashing comedy based on this parable, with Incog playing the female lead.

Honey Digra said...

Though I am not from US, but for sure I have liked Obama.. But now i am doubting it..

Now if that is the way things are going to work in there amidst of this US recession, then God saves America...

Thanks for the insight dear!!..

Hope things are going great at your end.



Incognito said...

FRASYPOO: I think that will happen to many businesses... but he might have seen the light. Apparently, he might hold off taxing the rich. So we shall see.

VEGASARTGUY: Well, we shall see if he follows through. Hopefully, he will realize it's not productive.

PATJ: I hope not, but if he truly is as left as he was educated to be, it would seem so.

WOMAN: Me too.

DD2: Yeah.. lots of clever people out there.

BIASEDGIRL: I know.. and I don't drink. :-)

CALICOBEBOP: Thanks Calico! Glad you did too. I think, though, that we Americans are too strong and independent to allow anything too drastic to happen to this country, if he does indeed try to take us down the road to socialism.

ZACK: :-) why don't you write the film Zack.. we could collaborate.

HONEY: Hey you, has been a long time. From the outside he looks great.. and maybe he will turn out to be okay... but the proof will be in the proverbial pudding. I would love nothing more than to be proven wrong. Hope all is well for you, too!