## Monday, February 21, 2011

### Taxes for Dummies - The tax system explained.

Suppose that every evening, 10 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 10 men drank in the bar every evening and were quite happy with the arrangement, until one day, the owner said "Since you are all such good customers, I'm going to reduce the cost of your daily beer by \$20." Drinks for the 10 men would 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, using the principle of our tax system, the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage based on how poor he was, and he proceeded to suggest the amounts that each should now pay.

Therefore, the fifth man, like the first four, now paid nothing.
The sixth now paid \$2 instead of \$3 (33% saving).
The seventh now paid \$5 instead of \$7 (28% saving).
The eighth now paid \$9 instead of \$12 (25% saving).
The ninth now paid \$14 instead of \$18 (22% saving).
The tenth now paid \$49 instead of \$59 (16% saving).

Each of the six was better off than before, and now half of the men continued to drink for free.

But, once outside the bar, the men began to compare their savings.

"I only got a dollar out of the \$20 saving," 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 buck too. It's unfair, he got 10 times more benefit than me!"
"That's true!" shouted the seventh man. "Why should he get \$10 back, when I got only \$2? The wealthy always win!"
"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax 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 their 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!

 Cheers!
And that, boys and girls, journalists, labor unions and government officials, is how the tax system works. The people who pay the highest taxes will naturally 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.

Source: Various Internet sources