Income Tax for Dummies

From my “brooder” in Bandera, Texas….

Taxes Explained

Let’s put tax cuts in terms everyone can understand.

Suppose that every day 10 men go out to dinner. The bill for all ten comes to $100. If it was paid the way we pay our taxes, the first four men 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.

The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement until the owner threw them a curve.

“Since you are all good customers,” he said, “I’m going to reduce the cost of your daily meal by $20.” Now dinner for 10 only costs $80.

The first four are unaffected. They still eat for free. Can you figure out how to divvy up the $20 savings among the remaining six so that everyone gets his fair share?

The men realize that $20 divided by 6 is $3.33, but if they subtract that from everybody’s share, then the fifth man and the sixth man would end up being paid to eat their meal.

The restaurant 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 paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the 10th man with a bill of $52 instead of $59.

Outside the restaurant, the men began to compare their savings. “I only got a dollar out of the $20,” declared the sixth man pointing to the 10th, “and he got $7!!”

“Yeah, that’s right”, exclaimed the fifth man. “I only saved a dollar,
too. It’s unfair that he got seven times more than me.”

“That’s true,” shouted the seventh man. “Why should he get back $7 when I got only $2? 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 10th man and beat him up. The next night he didn’t show up for dinner, so the nine sat down and ate without him.

But when it came time to pay the bill, they discovered something important. They were $52 short!! ”

And that, boys and girls and college instructors, is how the 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 may not show up at the table anymore. There are lots of good restaurants in Bermuda and the Caymans

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(and Switzerland, too, I’m sure.)

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