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pefjr
01-29-2010, 07:27 PM
Tom Hoffman, a Legend

Sometimes politicians may exclaim; It's just a tax cut for the rich! and
it is just accepted to be fact. But what does that really mean? Just in
case you are not completely clear on this issue, we hope the following will
help.
Tax Cuts - A Simple Lesson In Economics

Let's put tax cuts in terms everyone can understand. Suppose that every
day, ten men go out for dinner. 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 \$7.
The eighth \$12.
The ninth \$18.
The tenth man (the richest) would pay \$59.

So, that's what they decided to do.

The ten men ate dinner in the restaurant 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 meal by \$20."

So, now dinner for the ten only cost \$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 eat for free.
But what about the other six, the paying customers? How could they divvy up
the \$20 windfall so that everyone would get his 'fair share'?

The six men 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 eat their meal.

So, 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, like the first four, now paid nothing (100% savings).
The sixth now paid \$2 instead of \$3 (33% savings).
The seventh now paid \$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
eat 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 me!"

"That's true!!" shouted the seventh man. "Why should he get \$10 back 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 tenth and beat him up.

The next night the tenth man 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 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 at the table anymore. There are lots of good
restaurants in Europe and the Caribbean.

SMARTINSEN
01-29-2010, 07:29 PM
Where did you dredge this oldie up?

Paul Pless
01-29-2010, 07:33 PM
Where did you dredge this oldie up?its a perfect epilogue, no?

Tom Montgomery
01-29-2010, 07:35 PM
I take it you do not like a progressive income tax?

Tom Montgomery
01-29-2010, 07:49 PM
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 at the table anymore. There are lots of good restaurants in Europe and the Caribbean.

When it come to individuals, patriots tend to stay and the discontented, greedy and disaffected leave.

I doubt that many U.S. tax evaders flee to Europe.

Paul Pless
01-29-2010, 07:58 PM

Tom Montgomery
01-29-2010, 08:01 PM
Who? :confused:

rbgarr
01-29-2010, 08:08 PM
It's an absurd analogy. No one pays a 59% tax rate in this country. Not even a marginal rate.

leikec
01-29-2010, 08:13 PM
Quote - "It's an absurd analogy. No one pays a 59% tax rate in this country. Not even a marginal rate."

You think that's good; wait until you hear the one about the "death panels"....

Jeff C

Glen Longino
01-29-2010, 10:24 PM
I agree, Tom Hoffman is a genital and a squalor. Oh wait, squaller...No...

Nevermind.

Reminds me of that Richard Gere movie "An Orifice And A Genital"?
Damn good movie!

purri
01-29-2010, 10:31 PM
Is the theme music "Goat Riders in the Sky" ?

pefjr
01-29-2010, 10:49 PM
pefjr, Do you use your tongue when you and the Hoff kiss?

Dougtying one on tonight?

It's an absurd analogy. No one pays a 59% tax rate in this country. Not even a marginal rate.rbgarr
You saying Tom's figures could be off???

Cuyahoga Chuck
01-30-2010, 12:24 AM
Simplistic wa-wa. All you Neocons want the goodies but are not willing to pay for them. Anybody who would believe that nonsense would probably put their bucks in Las Vegas real estate.

Michael D. Storey
01-30-2010, 07:40 AM
The upshot allows people to avoid treating the United States like their best friend,and instead like a way to acquire more of everything.

seafox
01-30-2010, 08:27 AM
its pretty funny they guy who said no buddy in theis country pays 59 % even as a margional rate. the fact of the matter that the Cost of Government is more than 50% of the national income. that is all taxes taken by government all expences inflicted by goverment ( acounting ect) and all mandates required by government ( like unemployment insurance ) so I am pretty sure a goodly number of people in (this country are paying more than 59%

but then this example is an exact anology to the federal income tax with each of the 10 men representing 10 percent of the population. one person compalined it was an old example but no one has attacted the facts or the math of the anology.

the year this story was written the richest 10 percent of the people paid 59% percent of the federal income tax kennnedy brought the top margional rate down from 90% to 70% Reagan brought it from 70 to 28 ( FDR wanted 100% top martional rate) Clinton took the 28% back to 40 and Bush 43 lowered it clear down to 35% but only for a couple years and the tax reductions are about to expire

any one disagree with these facts?

and please note this is just fed income taxes some places add state and local income taxes

Phil Grahme of texas sunk his presidental run when he noted that 40 percent of the people in this country do not pay income taxes. now how is it fair that you want 10 % to pay most of the income tax while 40 % (as Grahme said) get a free ride.

someone said it was to simplistic. yea its simplified because we get robbed not just by jessie james ( the income tax) but by frank James( social security) and by the youngers (sales tax, exsize ,tax busness tax) and the daltons ( fees and liscences) and sure enough that dirty little coward( the water and garbage monoppaly) is in there stealing also.
but the story does illistrate a truth
a futher truth is that tax rates in the confederacy reached 11 percent and it begaain to looose more by evasion than it was producing by higher rates at that point a lot of observers since the time of the bible have argued that 10 percent is all that should be taken. we are way way over thaat now because they just keep taking a little more and a little more and the people get used to it. I wish the republicans could get just one law through--- no more withholding or bunch of different fees insteed one week before the election every one get a single bill listing every tax fee ect for the year. this I belive would have a wonderfull effect on limiting goverment

Beowolf
01-30-2010, 09:32 AM
Man. I can't wait til I'm wealthy enough to eat at some greasy spoon in the Caribbean. :confused:

Robert L E
01-30-2010, 10:57 AM
When it come to individuals, patriots tend to stay and the discontented, greedy and disaffected leave.

I agree with this but disagree when you say the effect of taxing the rich too much is minimal.

If people think they are being taxed way too much they have more of a tendency to search for loopholes and shelters and then end up paying less. People who hire do not see the profits needed to justify new employees.

The middle and the bottom tend to end up paying proportionally more.

If taxes are seen as being fair (by the payers, not the taxers) then the payer is more likely to just pony up. This also gives the payer more freedom to do whatever he wishes with his openly declared money.

I do not know what levels taxation should be at and I am a proponent of a graduated tax. I think those who say such a tax is too complicated and a flat tax would be simpler show a singular lack of brain power. Either way, once the income is figured the tax is just found in a table at the back of the tax booklet.

Bob

Garret
01-30-2010, 11:14 AM
I agree with this but disagree when you say the effect of taxing the rich too much is minimal.

If people think they are being taxed way too much they have more of a tendency to search for loopholes and shelters and then end up paying less. People who hire do not see the profits needed to justify new employees.

The middle and the bottom tend to end up paying proportionally more.

If taxes are seen as being fair (by the payers, not the taxers) then the payer is more likely to just pony up. This also gives the payer more freedom to do whatever he wishes with his openly declared money.

I do not know what levels taxation should be at and I am a proponent of a graduated tax. I think those who say such a tax is too complicated and a flat tax would be simpler show a singular lack of brain power. Either way, once the income is figured the tax is just found in a table at the back of the tax booklet.

Bob

I can see your points on this, but I think one point has been missed in the thread: The current tax structure is designed just as much as a means to affect the economy, as it is to raise \$. This (IMO) really muddies the waters whenever the "what's a fair tax" question comes up.

While I could go either flat (& would be interested to hear why any proponent of it "lacks brain power") or graduated - I believe the tax code will only become fair when 99.9% of the extra junk gets removed.

Of course, making it a simple table lookup based on income w/out all the extra would put many thousands of IRS, & tax prep folks out of business & make them find productive work. Could the US economy handle that?

pefjr
01-30-2010, 03:43 PM

Robert L E
01-31-2010, 09:44 PM
While I could go either flat (& would be interested to hear why any proponent of it "lacks brain power") or graduated - I believe the tax code will only become fair when 99.9% of the extra junk gets removed.

"lacks brain power" refer to those who say a flat tax is more simple than a graduated tax. There may be good arguements for a flat tax but it is not the graduated part of our current system that makes it complicated. Flat or graduated, it is just a tax table titled "Taxes Owed".

Bob

D Happ
01-31-2010, 10:10 PM
The richest people do not pay near the taxes the working man does. If you are incorporated, you probably don't pay anything. Prove no income and pay no taxes but live in very rich accomodations. Deduct the fuel for the helicopter. You won't hear those people bitch about tax hikes for the rich.

Garret
01-31-2010, 10:13 PM
"lacks brain power" refer to those who say a flat tax is more simple than a graduated tax. There may be good arguements for a flat tax but it is not the graduated part of our current system that makes it complicated. Flat or graduated, it is just a tax table titled "Taxes Owed".

Bob

Gotcha - pretty much in line with what I said above. Personally, I'd like to see all the extra stuff go away & have the income tax be "simply" a tax.

Tom Galyen
01-31-2010, 10:26 PM
I have always been a believer in a flat tax so I'll go with Captain Blight on this. I like 10% across the board. One study about 5 years or so ago said this would pay off our national debt in no time.

The tax lawyer lobby and the CPA's would never go for it. It would put to many of them out of a job and they would have to work for a living. :)

Keith Wilson
02-01-2010, 11:34 AM
Simplification of the tax code is a good idea. Getting rid of loopholes is a good idea. A flat tax is a terrible idea. There is no reason in the world they have to be be connected.

The essential principle of fair taxation is "equal pain". A flat tax falls far more heavily on those with less money, because each dollar you have is not of equal benefit to you. The thousandth dollar is far more beneficial than the millionth. The things you buy first as you get more money are more important - that's why you buy them first. Paying 10% of \$30K is far, far more detrimental than paying 10% of \$500K

And replacing a progressive income tax with a "flat" tax while leaving other taxes the same is an even worse idea . We already have the regressive Social Security/Medicare payroll tax, and most state tax codes with their heavy reliance on sales taxes are regressive, sometimes startlingly so (details here (http://www.itepnet.org/whopays3.pdf)). The combination of taxes already resembles something like a hideously complicated flat tax; replacing the income tax while leaving the rest of it alone would probably ensure that those with less money pay a larger percent of their income than those with more. This is both stupid and wrong.

Tom Hoffman - a nice guy, but one who rarely let the facts get in the way of his preconceptions. The example cited is completely wrong when it says "If they paid their bill the way we pay our taxes". That is NOT how US taxes are distributed; it may be how federal income taxes are distributed, but there are many other taxes which we all pay. The story is a lie, and it's typical of Tom that he would C&P it without checking the details, or even thinking about it very hard.

pefjr
02-01-2010, 12:43 PM
Tom Hoffman - a nice guy, but one who rarely let the facts get in the way of his preconceptions. The example cited is completely wrong when it says "If they paid their bill the way we pay our taxes". That is NOT how US taxes are distributed; it may be how federal income taxes are distributed, but there are many other taxes which we all pay. The story is a lie, and it's typical of Tom that he would C&P it without checking the details, or even thinking about it very hard.In fairness to Tom, he had rode off into the sunset before this was posted and had nothing at all to do with this thread. I was trying to be funny and the result turned into a tax debate. Sinloi:D

Keith Wilson
02-01-2010, 01:22 PM
If you don't want a tax debate, then don't post a story about tax policy based on a lie.

Tax policy discussions are one part philosophy, four parts accounting, and you damn well better get the accounting right before you bring in the philosophy.

pefjr
02-01-2010, 01:24 PM
If you don't want a tax debate, then don't post a story about tax policy based on a lie.

Tax policy discussions are one part philosophy, four parts accounting, and you damn well better get the accounting right before you bring in the philosophy.Yes Sir!

Keith Wilson
02-01-2010, 01:27 PM
Damn - I'm starting to sound like a humorless grouch. Time to go get some lunch.

Robert L E
02-01-2010, 01:32 PM
Simplification of the tax code is a good idea. Getting rid of loopholes is a good idea. A flat tax is a terrible idea. There is no reason in the world they have to be be connected.

I could not have said it this well.

The horror of agreeing with Keith again. I do probably think the rates should be flatter than Keith does though.

Bob

John Smith
02-01-2010, 01:37 PM
its pretty funny they guy who said no buddy in theis country pays 59 % even as a margional rate. the fact of the matter that the Cost of Government is more than 50% of the national income. that is all taxes taken by government all expences inflicted by goverment ( acounting ect) and all mandates required by government ( like unemployment insurance ) so I am pretty sure a goodly number of people in (this country are paying more than 59%

but then this example is an exact anology to the federal income tax with each of the 10 men representing 10 percent of the population. one person compalined it was an old example but no one has attacted the facts or the math of the anology.

the year this story was written the richest 10 percent of the people paid 59% percent of the federal income tax kennnedy brought the top margional rate down from 90% to 70% Reagan brought it from 70 to 28 ( FDR wanted 100% top martional rate) Clinton took the 28% back to 40 and Bush 43 lowered it clear down to 35% but only for a couple years and the tax reductions are about to expire

any one disagree with these facts?

and please note this is just fed income taxes some places add state and local income taxes

Phil Grahme of texas sunk his presidental run when he noted that 40 percent of the people in this country do not pay income taxes. now how is it fair that you want 10 % to pay most of the income tax while 40 % (as Grahme said) get a free ride.

someone said it was to simplistic. yea its simplified because we get robbed not just by jessie james ( the income tax) but by frank James( social security) and by the youngers (sales tax, exsize ,tax busness tax) and the daltons ( fees and liscences) and sure enough that dirty little coward( the water and garbage monoppaly) is in there stealing also.
but the story does illistrate a truth
a futher truth is that tax rates in the confederacy reached 11 percent and it begaain to looose more by evasion than it was producing by higher rates at that point a lot of observers since the time of the bible have argued that 10 percent is all that should be taken. we are way way over thaat now because they just keep taking a little more and a little more and the people get used to it. I wish the republicans could get just one law through--- no more withholding or bunch of different fees insteed one week before the election every one get a single bill listing every tax fee ect for the year. this I belive would have a wonderfull effect on limiting goverment

I would ask the question this way. If the top 10% of the country own 90% of the wealth, why shouldn't they pay 90% of the taxes. That would seem fair.

Why should Warren Buffet pay a smaller percentage of his income in taxes than does his secretary?

Keith Wilson
02-01-2010, 01:47 PM
The horror of agreeing with Keith again. I do probably think the rates should be flatter than Keith does though.Oh, it's not so terrible; you might even get used to it. :D Reasonable people can disagree about exactly how progressive tax rates should be. You might be surprised how regressive most state taxes are (details here (http://www.itepnet.org/whopays3.pdf)), and I don't think any reasonable person can argue in favor of regressive taxation.

Uncle Duke
02-01-2010, 01:58 PM
This (fairly short, easy reading) piece from Robert Reich discusses tax breaks for the wealthy in the context of accelerated depreciation breaks for business and supply-side economics:
http://robertreich.blogspot.com/2008/01/real-recession-problem-consumers-are-at.htm

Here's a snip or two for those who don't want to leave this page to read something else:

What’s left out is the demand side of the equation. Without consumers who want to buy a product, there’s no point in making it, regardless of how many tax breaks go into it.
Which gets us to the real problem. Most consumers are at the end of their ropes and can’t buy more.
[snip]
Most of what’s being earned in America is going to the richest 5 percent, but the rich devote a smaller percent of their earnings to buying things than the rest of us because, after all, they’re rich -- which means they already have most of what they want. Instead of buying, the rich invest most of their earnings wherever around the world they can get the highest return.
Add all this together and there’s just not enough consumer demand out there to keep the American economy going. We’re finally reaping the whirlwind of widening inequality and ever more concentrated wealth.

MiddleAgesMan
02-01-2010, 03:35 PM
Speaking of accelerated depreciation, what about repeat depreciation? We think depreciation can only be taken once but that ain't so. A property can be depreciated over and over again. What's that doing to the tax base? Is it any wonder the tax burden has fallen more and more on groups of us who don't have lawyer-lobbyists working for us in Washington?

How, you may ask, can depreciation be taken repeatedly?

Simple example--a commercial property is purchased, improved, leased, and depreciated over a period of, say, ten years.

It is then sold to someone else who improves it (maybe), leases it out and takes depreciation.

This can happen without limits. The long and short of it is that a million dollar property can bring depreciation benefits to a series of owners totaling tens of millions of dollars over a half-century. The net effect to the tax base is passed down to ordinary people earning ordinary incomes, including even unemployment benefits!

Bobby of Tulsa
02-01-2010, 03:39 PM
I thought you were talking about Spiro Agnew.

TomF
02-01-2010, 03:40 PM
Reich's exactly right.

One must ask whether it's really a good thing to create yet more personal indebtedness in order to re-start consumer demand sufficient to get the whole economy hurtling along. If stats be true, what most of us should be doing is not spending, and getting our debt under control ...

hokiefan
02-01-2010, 03:47 PM
Speaking of accelerated depreciation, what about repeat depreciation? We think depreciation can only be taken once but that ain't so. A property can be depreciated over and over again. What's that doing to the tax base? Is it any wonder the tax burden has fallen more and more on groups of us who don't have lawyer-lobbyists working for us in Washington?

How, you may ask, can depreciation be taken repeatedly?

Simple example--a commercial property is purchased, improved, leased, and depreciated over a period of, say, ten years.

It is then sold to someone else who improves it (maybe), leases it out and takes depreciation.

This can happen without limits. The long and short of it is that a million dollar property can bring depreciation benefits to a series of owners totaling tens of millions of dollars over a half-century. The net effect to the tax base is passed down to ordinary people earning ordinary incomes, including even unemployment benefits!

The cost of a property is a cost of doing business. The cost is subtracted from revenue to get profits. Only profits are taxed. The government says many big costs have to be capitalized, which means they are subtracted from revenue in pieces over a time period depending on the type of asset. This is depreciation. Because of the time value of money, it would be in the business' best interest to declare the cost at the beginning, but the tax laws don't allow it. Creates the complication of depreciation and the recordkeeping that goes with it.

My point that I didn't make very well was that the cost of a property is cost to the second business as well, so certainly they should deduct that cost from their revenue when calculating profits. In a word, depreciate it again.

Cheers,

Bobby

Keith Wilson
02-01-2010, 03:52 PM
what most of us should be doing is not spending,Maybe not. The Paradox of Thrift (http://en.wikipedia.org/wiki/Paradox_of_thrift), and Krugman's take on it. (http://krugman.blogs.nytimes.com/2009/07/07/the-paradox-of-thrift-for-real/)

It's another example, like the tragedy of the commons, where individuals acting in their self-interest leads not to general benefit, but to a result that no one wants.

TomF
02-01-2010, 04:10 PM
Yeah, I understand the paradox of thrift ... but it is indeed a paradox.

With all due obesiance to Krugman, we once had to dig ourselves out of more consumer debt than we should have taken on. I know which side of the paradox will be getting more attention in our home.

hokiefan
02-01-2010, 04:29 PM
Yeah, I understand the paradox of thrift ... but it is indeed a paradox.

With all due obesiance to Krugman, we once had to dig ourselves out of more consumer debt than we should have taken on. I know which side of the paradox will be getting more attention in our home.

I'm with you Tom. What I'm hoping is that while my family (and maybe yours:D) concentrates on saving more, the rest of the world will spend our way out of this recession. Works for me. Actually what we've been working on for the last 10-12 years. Another 10 or so and we'll be in good shape.

Cheers,

Bobby

MiddleAgesMan
02-01-2010, 05:43 PM
The cost of a property is a cost of doing business. The cost is subtracted from revenue to get profits. Only profits are taxed. The government says many big costs have to be capitalized, which means they are subtracted from revenue in pieces over a time period depending on the type of asset. This is depreciation. Because of the time value of money, it would be in the business' best interest to declare the cost at the beginning, but the tax laws don't allow it. Creates the complication of depreciation and the recordkeeping that goes with it.

My point that I didn't make very well was that the cost of a property is cost to the second business as well, so certainly they should deduct that cost from their revenue when calculating profits. In a word, depreciate it again.

Cheers,

Bobby

Deductions for depreciation of real property accrue to the owner of the property, not the businesses that lease it.

Not so long ago (50, 100 years?) most tax revenue came from taxes on real property. As the wealthy bought more political power they found they could "buy" favorable treatment of assets such as real property. While life in general and governments in particular became more complicated--and expensive--the burden has been shifted from owners of property to labor.

And that's a fact.

Keith Wilson
02-01-2010, 08:24 PM
Here's a little real data. The Gini coefficient (http://en.wikipedia.org/wiki/Gini_coefficient) is probably the most common broad measure of income inequality. Higher is is more unequal. Here's the values for the US as a whole over the last century:

http://www.payvand.com/news/07/apr/Income-Inequality-US.jpg]

Interestingly, it varies a lot by state in the US (current numbers):

http://filipspagnoli.files.wordpress.com/2008/10/income-inequality-in-the-us-gini-by-state-map.jpg

And here's a county-by country comparison over time. Note that the distribution of wealth in the US is much more unequal than any other rich country. (Sorry about the chart; I couldn't find one that was easier to read.)

http://www.marketthoughts.com/images/20060402/chart02.gif

Tom Montgomery
02-01-2010, 08:33 PM
US National politics in 2010....

Rep: "Here is what I would like to see in the Bill."

Dem: "If we include that will you support the Bill?"

Rep: "You know I cannot vote for the Bill."

Dem: "Then why should we include your idea in the Bill?"

Rep: "You leftists are just unwilling to meet us in the middle."

Garret
02-01-2010, 11:13 PM
Here's a little real data. The Gini coefficient (http://en.wikipedia.org/wiki/Gini_coefficient) is probably the most common broad measure of income inequality. Higher is is more unequal. Here's the values for the US as a whole over the last century:

http://www.payvand.com/news/07/apr/Income-Inequality-US.jpg]

Interesting the parallel in the differential increasing in the late 20's & also towards the end of the chart (leading, I presume to a few years ago). Anyone more knowledgeable about economics than I have a theory as to the possible correlation between increased disparity of income levels & a "crash"?