How tax cuts work. Can you do the math?

I know this is a long one, but please read the whole thing.



With the election next week, you have probably heard a lot of political squabbling about tax reform and our need for an “equitable” tax system. This issue has been seriously mis-represented and the majority of people have relied on the mainstream media and come to believe certain things about the burden of taxes in this country that has little to do with reality.





I have heard this story below a number of times on the radio, broadcast email, forwards, etc. It is a story about 10 men who had dinner together every week and settled the bill according to the structure of the “tax system” in this country.





This story of the dinner is obviously fictitious, but the analogy is accurate. Some have attributed the unconfirmed authorship to Don Dodson of Ft. Worth TX in a letter to the editor of the Chicago Tribune in March of 2001 but the earliest distribution that I have been able to find is by T. Davies, Professor of Accounting at the University of South Dakota School of Business who has personally disclaimed authorship but acknowledges distributing it to his graduate students to stimulate discussion. You may have heard this before but it is still both good and timely.





It seemed that 10 men decided to have a business lunch once a week. They always met in the same restaurant and the bill was always, $100.00, for all 10 men. If each man was responsible for his share of the bill that would be, $10.00, each. The men decided to divide the bill based upon their ability to pay (using the progressive structure of the tax code). Using this formula the following payment arrangement was worked out based upon income.





Men 1-4 who made the least amount of money paid nothing.



Man 5 paid $ 1.00



Man 6 paid $ 3.00



Man 7 paid $ 7.00



Man 8 paid $12.00



Man 9 paid $18.00



Man 10 paid $59.00





After several weeks the owner of the restaurant told the men that because they were such good customers he was reducing the bill by $20.00. Their dilemma was how to divide up the, $20.00. If each person got the same amount then the first 4 men would be getting money back but they never paid anything for the dinners. After much discussion and no resolve the owner offered the following suggestion which they all agreed to.





Original Payment-New Payment-$ Amount Saved-% Saved





Men 1-4 paid $ 0.00 $ 0.00 $0.00 0%





Man 5 paid $ 1.00 $ 0.00 $1.00 100%





Man 6 paid $ 3.00 $ 2.00 $1.00 33%





Man 7 paid $ 7.00 $ 5.00 $2.00 28%





Man 8 paid $12.00 $ 9.00 $3.00 25%





Man 9 paid $18.00 $14.00 $4.00 22%





Man 10 paid $59.00 $50.00 $9.00 15%





Once outside the men began to argue about the settlement. Man 5 said he only got, $1.00, while Man 10 received, $9.00. Men 1-4 were upset because the received nothing. They said that the cut only benefited the rich and the poor got nothing. They were upset so they beat up Man 10 and left him. The next week they met for lunch as usual except man 10 did not show up. When the new bill arrived the men discovered that between them they did not have enough money to pay even half of the bill.





In this story we see a simplified version of the Federal Income Tax. According to an article in the “New York Times” 80% of the taxes are paid by 20% of the people highest income people. Any time you have a tax cut the people who are carrying the tax burden are going to get the money. The next time you hear of a tax cut and the media tells you that the wealthy are getting all the money, remember they are the ones paying the taxes.

How tax cuts work. Can you do the math?
Obama thinks he is smarter than you, he is splitting the $9 ($2 each plus $1 for himself) with the 1-4 guys while pocketing guys 5%26amp;6 money to buy the vote.
It would be so nice if this would enlighten a few people, but those who are in need of such enlightenment will likely not take the time to read, let alone to understand the phenomenon, I fear!How tax cuts work. Can you do the math?
that was Beautiful.however im for the fair-tax
Bush could only cut taxes by borrowing the money, so the question is not how we should divide up the $20, but why we think we should charge $20 of the cost of our meal to our children.
Under Obama's plan, Man 1-4 would get a free meal AND five dollars cash.