Tax system explained - Aussie Stock Forums

1. ## Tax system explained

Tax System… Explained In Beer!

Suppose that every day, ten 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 ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the bar-owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by \$20." Drinks 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.

How could they divide the \$20 windfall so that everyone would get his fair share?'

They realised 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, the bar 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 pay \$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 drink 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 I!"

"That's true!!" shouted the seventh man. "Why should he get \$10 back 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 drinks, so the nine sat down and had 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!

And that, boys and girls, journalists and college professors, 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 just may not show up anymore.

In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D. Professor of Economics, University of Georgia

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.

2. ## Re: Tax system explained

I like it,

but isnt it the lower/middle class who pays most of the taxes,

while the wealthiest dodge the taxman,

3. ## Re: Tax system explained

Originally Posted by beerwm
I like it,

but isnt it the lower/middle class who pays most of the taxes,

while the wealthiest dodge the taxman,
Common mistruth perpetuated by the propoganda machine known as the UNIONS.

I do believe that due to the volume of middle bracket earners in Banana Republic Land that their wallet is lighter come pay day. As a percentage of tax they would pay compared to the upper echelon is another matter entirely. Thats what the thread is all about.

4. ## Re: Tax system explained

Originally Posted by trainspotter

In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
That's exactly right. Big business always looks for tax-friendly locations.

http://en.wikipedia.org/wiki/File:Ta...and_demand.png

5. ## Re: Tax system explained

I loved it when Kerry Packer was being grilled by a Senate Committe as to why he was only paying 16% tax. The Big Fella thundered "Well, I'm hardly likely to give it all to you am I ? You are doing such a good job of it at the moment!"

Oh yeah .. 16% of his nett profit in Banana Republic Land was to the tune of several hundred million dollars !! Pfffffffftttt ! Chicken feed really.

6. ## Re: Tax system explained

Originally Posted by trainspotter
Common mistruth perpetuated by the propoganda machine known as the UNIONS.

I do believe that due to the volume of middle bracket earners in Banana Republic Land that their wallet is lighter come pay day. As a percentage of tax they would pay compared to the upper echelon is another matter entirely. Thats what the thread is all about.
I have read that the Forbes top 100 list pay a lower % of taxes than their employees... when your that rich, there are many ways of diverting your funds to reduce your overall tax %

7. ## Re: Tax system explained

Absolutely jono1887. But because the Forbes 100 people are earning so much when you take a smaller percentage from them it will equate to a larger amount. Interesting to note that the "employees" are paying more than the company that employs them? Company tax is a flat rate of 30% of the nett profit of the business. Tax the man that employs these people and what will happen? He will shed staff to remain profitable.

Tax on an income earning \$34,001 – \$80,000 = \$4,200 plus 30c for each \$1 over \$34,000.

Tax on an income earning \$180,001 and over = \$58,000 plus 45c for each \$1 over \$180,000

8. ## Re: Tax system explained

Originally Posted by trainspotter
Absolutely jono1887. But because the Forbes 100 people are earning so much when you take a smaller percentage from them it will equate to a larger amount. Interesting to note that the "employees" are paying more than the company that employs them? Company tax is a flat rate of 30% of the nett profit of the business. Tax the man that employs these people and what will happen? He will shed staff to remain profitable.

Tax on an income earning \$34,001 – \$80,000 = \$4,200 plus 30c for each \$1 over \$34,000.

Tax on an income earning \$180,001 and over = \$58,000 plus 45c for each \$1 over \$180,000

I was referring to the people that found the companies, not the companies themselves. eg Bill Gates pays less tax than his employees that work for Microsoft (not the company).

9. ## Re: Tax system explained

Possibly because he has himself geared to maximise his tax deductibility? Not sure whether Bill Gates is a good example. I reckon he would cough a fair amount into the tax system of the good 'ol USA somehow. His company may only pay him a stipend and everything else is owned by the company? There are too many variables to confidently categorise a founder of a company in one particular tax bracket or not. Or are you saying that Bill Gates pays less tax than ALL his employees combined? I'm a bit vague here.

But yes jono1887, the rich get richer and the poor get the picture.

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