Bush tax cut anecdote- help me refute the spin here!

[BREMPRO]

My conservative but reasonable father send me this Reaganomics-like simple anecedote about "tax cuts for the rich" basically saying that because they are rich they should receive a larger share of the tax cut. Can anyone with some real knowledge about these cuts help redo this anectode to reflect the ACTUAL effects of the Bush tax cuts? Does this refect the actual income distribution..i.e. shouldn't there be 100 people with the top ONE getting the most benifit? Who benifits and what is the actual % distribution of the cuts? HELP!!


HERE IT IS:

This is a good explanation of how income taxes really work!!

Sometimes politicians, journalists and others 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, I hope the
following will help. Please read it carefully.

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

Suppose that every day, ten men go out for dinner 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 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." Dinner 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 eatfor 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 sixthman 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 $10back 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 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 anymore. In fact, they might
start eating overseas where the atmosphere is somewhat friendlier.

[Deja Q]

1. The overseas restaurant may be cozier, but they don't realize their home

IS BURNING DOWN (metaphorically speaking; the only people who can pay the prices they charge happens to be the middle class... the upper class doesn't want any of that plastic stuff...)




Also, the atmosphere for the US is friendlier overseas?! Haven't read that in the MAINSTREAM media either... :think:

[Coexist]

2. here is something:

http://john.daltons.info/tax_explanation_response.html

Camera pulls back from the diners consuming dinner at the dinner table and rewinds to the kitchen. It just so happens the ten diners worked in the kitchen, producing the dinner they had just eaten.

The tenth diner, the owner of the restaurant, is sitting on his backside telling the head cook to make the cooks work faster. Each time a customer pays their $100 bill, the owner takes $50 and gives the remaining $50 to the cooks.

One day the owner gets peeved off at something and disappears, never to be seen again. The nine cooks, look at each other, shrug, then carry on cooking as before. When the next customer pays their $100 bill, they wonder what to do with the $50 which the owner used to take. They decide to split it equally.

It turns out that with this $50 the nine diners could afford to buy dinner after all.

Copyright 2004 by John Dalton and distributed under the terms of the GNU General Public License.

[Coexist]

3. and something else:

http://www.andrewtobias.com/newcolumns/030120.html
<snip>
This is not to say that the best off don’t pay a heck of a lot in taxes – they do! They should be proud that they do. We should be grateful that they do.



But it is a balance. And the balance under Clinton/Gore worked out pretty well for everyone – including the top 1%, who got richer faster than any other group, even after tax.



So why, when you look at all the problems and challenges in the world, would you say, “Well, we can’t do everything, so let’s direct most of our efforts and resources toward improving the plight of the rich. Let’s shift the balance further in their favor.” Why would you say that?



The most remarkable thing about this idiotic thing about the 10 men having the $100 dinner is that it seems to be passed around the Internet not, for the most part, by people with adjusted gross incomes in excess of $383,000 a year (the top 1%), but, rather, by people so eager for $1,000 and $2,000 tax cuts that they don’t bother to take into account the extra $20,000 or $40,000 in national debt they and their children will be taking on in return – money borrowed largely to give much, much larger tax cuts to people like George Bush (whose annual tax savings have been estimated at $44,500) and Dick Cheney ($327,000). Not to mention the really rich.

[Coexist]

4. and one with several endings!

http://www.armedliberal.com/archives/000551.html

[BREMPRO]

8. all good info-many thanks ! n/t

[ret5hd]

5. well, i'll go first...

the first two guys got a glass of water, the next two got a glass of tea, the fifth guy got a happy meal.
the first four got stopped on the way home for "driving while black". one was beaten, the other three got a ticket for a broken tail light.
the fifth guy got his apartment burglarized cause the cops don'r waste too much time on his street...except giving out tickets for broken tail lights.

the sixth guy got a big mac...but no fries. he got a flat on the way home cause the streets in his p
the seventh guy got a big mac and fries. he made it home ok tonite, but he doesn't know about tomorrow.
.
.
.

now, that tenth guy got filet mignon, glass of wine, and fingerbowls. the waitstaff kissed his ass. in his chauffered car he had a drink on the way to his gated community. all his shit was still there when he got home cause the cops take very good care of his street. and if for some reason he had a complaint about the streets or the cops or the fire department, the mayor would take his call at 8:00 the next morning and know him by name...even ask how his wife and kids are doing. they would set up a lunch date.

at lunch, the 10th guy would bitch to the mayor how his gardener and maid (person #1 and #2) constantly say they need more money, even thought he gives them a free glass of water every day. And his butler insists on free tea!


etc etc etc...i'm tired of typing.

[Lefty48197]

16. hilarious

.

[niallmac]

6. Since when do rich people eat with poor people?

What on earth is the dinner supposed to represent?
The rich guy has his own everything. He doesn't share food or medical care or diddly squat.
What a contrived bunch of BS
Lets just stick to paying taxes.
Lets stick to what everyone does AFTER dinner:
The rich guy makes money from his money and gets to slide on his taxes because of a tax code so long only expensive lawyers can
manipulate it.
The rich guy may pay NO taxes.
The poor get precious little in the way of social services because the RICH GUY not only doesn't eat with them he would like it if they would
all get washed away in a hurricane.
(Before you rich guys jump me, 'rich guy here means the awesome collective wealth that is in the hands of so few and stays there.'
The other guys at the table may be working for fixed incomes that cannot pay for health insurance or education for themselves or their kids.
Rich guy doesn't care. He buys his own.
Roosevelt was a rich guy who saw through the BS and made the other rich guys less rich and offered to remove the terror of poverty and famine from
our poor.
Now guess who screams bloody murder along with the rest of us if their Social Security is threatened? Yeah, the rich guys.

Sorry, that is a rushed stream of conciousness rant that I wouldn't use for anything else than my own therapy. But, what an Ass Hat anecdote.

[BREMPRO]

9. good cut through the folksy BS perspective- thanks! n/t

[Th1onein]

7. How about this:

The rich men are the ones running up the bill! We wouldn't be in Iraq if it were up to the poor and the middle classes, because WE'RE the ones sending our kids there to die! This war is lining the pockets of the rich.

Why do they keep running up the bills and expecting us to pay them?

[ticktockman]

10. Even as a percentage, the Bush tax cuts were skewed to the rich

That so-called "Tenth Man Parable" has been around for awhile. You can read a version of it in a 2001 National Review article by William F. Buckley at http://www.nationalreview.com/buckley/buckley042701.shtml . By the way, the numbers don't quite add up in your version. The $20 savings is distributed by giving 1, 1, 2, 3, 4, and 10 dollars to the 5th, 6th, 7th, 8th, 9th, and 10th men, respectively. That adds up to 21 dollars. Hence, at least in the sense that your version involves bad math and deficit spending, it does serve as a better example of the Bush tax cut!

Beyond that, the primary point of the parable seems to be that the fair way to distribute tax cuts is to have everyone's taxes cut by the same percentage. The trouble is, even judged by this standard, the Bush tax cuts are generally skewed toward those with high incomes. However, the tax cuts were designed in such a way that this skewing was not obvious.

First of all, the old 15 percent bracket was split into a 10 and 15 percent bracket. Those in the new 10 percent bracket got a 33% marginal tax cut while those remaining in the 15 percent tax bracket got none. This very large tax cut for the very poorest served as cover for the fact that the rest of the marginal tax cuts were generally skewed toward those with higher incomes. This can be seen in the graphs at http://home.netcom.com/~rdavis2/taxcut03.html .

Secondly, the increase in the child tax credit and fixing of the so-called "marriage penalty" made the percentage cuts appear larger for those with lower incomes. It was likely no accident that all of the examples of tax cut distributions given out by the Treasury Department involved married couples, chiefly with children.

Thirdly, the benefit of the cuts in dividends and capital gains received very little scrutiny. The relatively small dividend tax cuts in the Treasury Department examples were heavily outweighed by including only married couples with children for the lower wages. In any case, you can see a much more detailed discussion of the distribution of the Bush tax cuts at http://home.att.net/~rdavis2/tax03ex.html . Hope that helps.

[Sammy Pepys]

11. It's one of the difficulties you encounter with a progressive system n/t

...

[seasat]

12. Here's some data on the percentage of income paid in taxes

(Center for Tax Justice Federal Rates)

(Center for Tax Justice State Rates)

(CBO Federal Rates)

You can see that the total effective tax rates (State + Federal) are basically flat and that the Shrub Inc tax cuts gave a greater percentage cut to the wealthy, a greater amount to the wealthy, and greater cut in effective rate. The story is false. It does not represent reality.

[Odin2005]

13. The rich payed sky-high taxes in the 50's and 60's...

...and economic growth was just as sky-high. It is the tax rates of the middle class and the poor that affects the economy, not the tax rates of the rich.

[stevebreeze]

14. a couple other thoughts

To start with federal income tax is not the only tax all 10 men would pay. They would also pay FICA, State income tax, property tax sales tax, and a few other more minor taxes. Taken all together those in the middle class often pay a higher total tax burden then those at the very top. Inheritance taxes spring to mind, the average tax bite out of inheritances over $20 million is 17%, not exactly the onerous tax it is presented as.

There is a good graph here at Brad DeLong's site.
http://www.j-bradford-delong.net/movable_type/2005-3_archives/000873.html

Let's also not forget that the richest man would not be rich except for the opportunity our society provides him. Isn't it fair that those who receive the greatest value from society should pay the most to support that same system?

[ticktockman]

15. Federal taxes as a percent of income

To start with federal income tax is not the only tax all 10 men would pay. They would also pay FICA, State income tax, property tax sales tax, and a few other more minor taxes. Taken all together those in the middle class often pay a higher total tax burden then those at the very top. Inheritance taxes spring to mind, the average tax bite out of inheritances over $20 million is 17%, not exactly the onerous tax it is presented as.

I have found it interesting that none of the proponents of tax cuts ever seem to mention payroll taxes. It is the one tax that I'm aware of whose rate has never been cut. It has done nothing but increase, from 1% in 1937 to 7.65% today. In any case, you're correct to mention payroll taxes and state taxes. The following graph shows just the percentage of income in federal taxes paid by various segments of income earners in 2000, before Bush's tax cuts.



As can be seen, the burden in total federal taxes is not nearly as heavy on the top ten percent as is implied by the tenth man parable. You can also see that estate taxes make up a very small portion of total federal taxes. In any case, the numbers and sources for this graph are at http://home.att.net/~rdavis2/distax.html .

[ReaderSushi]

17. Point out that they are already overseas.

If someone gave you a $10,000.00 tax break, would you invest it in the US where there is a 3% growth rate or in China where the growth rate is 9%? That tenth person (the rischest) has never really been at the table in decades.

[dcfirefighter]

18. This presupposes that the diners EARNED their income

Which is not necessarily true:

The 4 poorest, who's only 'wealth' is their Labor, must sell their Labor in a market where it is taxed at 15.3%, even if they pay nothing in income tax. They must sell their labor in a market where, likely, the sale of what they produce is taxed. Their labor must compete with work done by heavily, heavily subsidized & externalized fossil fuel. They must sell their labor in a market where macroeconomic actions are taken to ensure that 'too many' people aren't employed. Whatever wages they might get for their labor, they most definitely EARNED, and then some.

The 1-2 richest, who's wealth consists largely of government-priviledged-holdings have subverted the rules of government to benefit them financially. They, or the companies they own, own:
Extraction Rights, which allow them to withdraw items from the commons for private gain. Usually this activity is tax-advantaged. Know of any Oil Billionaires?
Geographic Monopoly Rights. Again, taking from the commons. Ever heard of any railroad or real estate billionaires?
Money Creation Rights. Private Banks create money by lending it into circulation. There is, of course, money to be made making money.
Physical Monopoly Rights. Broadcast rights. Airport landing slots. Port slots.
Patents, which get the government to defend what, at least partially is, common knowledge. (e.g. if Marconi didn't 'invent' radio waves, how long would it have taken Tesla to do so? ;) ).

Granting some of these rights exclusively to individual corporations isn't the evil part. Imagine what sort of radio reception you'd get if we didn't. The evil part is that we allow these rights, once bought, to be held and traded speculatively. A better way would to hold these rights as rights in common, and RENT their exclusive use out: practically, this is merely a wealth tax on commonwealth goods.

The five guys in the middle EARN various portions of thier income, and benefit like rentiers on the remainder. Nothing I say takes away from the industrious person's ability to earn, save, and reinvest for a greater than average income. What I'm ranting against is the ability of the speculative person's ability to earn, buy, and charge for access to (or earn extraordinary profits from ownership of) natural wealth - which, not being created by anyone, should be considered a common birthright.

We often hear of the US falling behind the world in engineering and the sciences. Part of this reason is that many of our best and brightest chase money into the fields of Finance, Insurance, and Real Estate (FIRE). FIRE does nothing (or very little) productive, it merely charges others for manipulating rules.