The Dinner Party or The Income Tax
73The Dinner Lesson
The Dinner Lesson
With the income filing date fast approching I though it would be interesting to relate this story.
This is a story that I heard on the radio about 10 men who had dinner and paid for it in the same manner as you would pay your income tax. A Professor of Economics from the University of Georgia created this to help explain the Income Tax and how cutting taxes works.
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 an agreed upon formula the following payment arraignment 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 delimina 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 out side 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 pay taxes 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 paying the taxes.
adgadsg Sorry if the Truth Hurts.
I wish learning economics was so easy as u have explained it.. wish our politicians too learned economics
sweetie1, Basic economics is simple and easy to understand. As this story points out that when you depend upon the very rich for everything then you end up with nothing when they decide not to show p. In New York City, New York State and California the very rich are moving out because the government is taking more than half of everything they make. When a person receives 1.5 million dollars as a bonus and spends, saves or invests (anything but holding on to the cash) that person is creating jobs for others. When the government takes 60% of it in taxes that is 60% less to create jobs for others. Some how the politicians think that if a person will pay 60% in taxes then you can tax them at 65 or 70% and get more money. How many people would work 4 hours for 1 hours pay? this is what the [politicians do not understand.
It would have also been helpful if the gentleman posting the example would have referenced specifcs on who these 10 men are and the income of the 10 men instead of just ability to pay. He doesn't mention that statistically 3 of the bottom 4 men are elderly. He also doesn't mention that the average ability to pay for men 8-10 has increased tremendously over the past 20 years where as the ability for people like man 5 have either declined or remained stagnant although man 5 has increased his productivity. We have to own up to the part that federal tax policy has played in this shift. Not to mention their is no universe where these 10 men are eating at the same restaurant and if so, they definitely are not having the same meal. It may be so that taxation based on a citizen's ability to pay may not be fair, however there is no stable society on earth that is devout of a middle class with the ability to house, feed and educate itself. We can question the efficacy of safety net programs and healthcare for all, but it is pretty clear to me that if we don't pay the bill through tax policy, we will surely pay for it in other ways.
Tim the one thing that Warren Buffett failed to mention in his comments is that he chooses to take dividends(which has already been taxed at a rate of 35% before the company pays it out to the investor) and capital gains instead of a salary which then would be taxed at a much higher rate. It should also be mentioned that if Mr. Buffett earned $100,000 in dividends and capital gains but lost $50,000 on other investments he pays taxes on $97,000 even though he only made a net gain of $50,000. The governments taxes all of the gains but only lets you deduct $3,000 in loses. In the above example he would be paying $14,550 in taxes on $50,000 of net earnings which would be a 29.1% tax rate. It is people like Mr. Buffett that are investing in companies so that they can expand and create jobs.
When he talks about the poor and shared sacraface he did not mention that 43% of the wage earners in this country paid no Federal Income tax at all and many of them receive the Earned Income Tax Credit, and receive more money back in a refund than they have withheld.
The other thing that many people think is that when the money is withheld from thier pay checks that they are paying taxes. They pay taxes when they file their returns. I talked to a person who told me that they do pay Federal Income Taxes. When I asked how much was withheld I was told that it was about $1200 for the year and then was told that they received a tax refund of about $4000. When I pointed this out I was told but I paid my taxes.
What we need is a simple and fair tax law that everyone pays the same rate.
TF Wagner 5 years ago
Too bad, an illustration so simple explains the truth, but our friends Left of center are unable to see because of their Tax & Spend rose colored glasses. tfw