How the tax system works.

I've seen this other places but I'll give the Hat Tip to The General Ledger http://the-general-ledger.blogspot.com/ You may have seen this before, but it's worth reading it again to remember the lesson.

Suppose that every day, ten men go out for beerand 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 seemedquite 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 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. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyonewould 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 sixth man would each end upbeing paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughlythe same amount, and he proceeded to work out the amounts each should pay.

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 were 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 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 drinking overseas where the atmosphere is some what friendlier.

Have we been Spoiled by Capitalism?

For more by Scott Martin, visit Conservatism Today.

Jonah Goldberg has a wonderful piece up at National Review Online, entitled "The Spoiled Children of Capitalism." In it, he explains why he believes we have been, and I think there is a great deal of truth to this.

We’ve all witnessed the tendency to take a boon for granted. Being accustomed to a provision naturally leads the human heart to consider that provision an entitlement. Hence the not-infrequent lawsuits from prison inmates cruelly denied their rights to cable TV or apple brown betty for desert.
And so it goes, I think, with capitalism generally.

Capitalism is the greatest system ever created for alleviating general human misery, and yet it breeds ingratitude.

People ask, “Why is there poverty in the world?” It’s a silly question. Poverty is the default human condition. It is the factory preset of this mortal coil. As individuals and as a species, we are born naked and penniless, bereft of skills or possessions. Likewise, in his civilizational infancy man was poor, in every sense. He lived in ignorance, filth, hunger, and pain, and he died very young, either by violence or disease.

The interesting question isn’t “Why is there poverty?” It’s “Why is there wealth?” Or: “Why is there prosperity here but not there?”

At the end of the day, the first answer is capitalism, rightly understood. That is to say: free markets, private property, the spirit of entrepreneurialism and the conviction that the fruits of your labors are your own.

Goldberg goes on to point out that capitalism has so improved life that more people than at any other time in history make a living almost solely off their intellectual capital.

For generations, many thought prosperity was material stuff: factories and forests, gold mines and gross tons of concrete poured. But we now know that these things are merely the fringe benefits of wealth. Stalin built his factories, Mao paved over the peasants. But all that truly prospered was misery and alienation.

A recent World Bank study found that a nation’s wealth resides in its “intangible capital” — its laws, institutions, skills, smarts and cultural assumptions. “Natural capital” (minerals, croplands, etc.) and “produced capital” (factories, roads, and so on) account for less than a quarter of the planet’s wealth. In America, intangible capital — the stuff in our heads, our hearts, and our books — accounts for 82 percent of our wealth.

In large measure our wealth isn’t the product of capitalism, it is capitalism.

And yet we hate it. Leaving religion out of it, no idea has given more to humanity. The average working-class person today is richer, in real terms, than the average prince or potentate of 300 years ago. His food is better, his life longer, his health better, his menu of entertainments vastly more diverse, his toilette infinitely more civilized. And yet we constantly hear how cruel capitalism is while this collectivism or that is more loving because, unlike capitalism, collectivism is about the group, not the individual.

These complaints grow loudest at times like this: when the loom of capitalism momentarily stutters in spinning its gold. Suddenly, the people ask: What have you done for me lately? Politicians croon about how we need to give in to Causes Larger than Ourselves and peck about like hungry chickens for a New Way to replace dying capitalism.

And therein lies the rub, in my opinion. Love of capitalism is scarce, it needs to be nurtured and protected. It needs to be taught. What has capitalism done for us lately? Is there any doubt that my generation has a greater standard of living than my father's generation? We have more choices when it comes to goods and services, computers do things in seconds that most people could never do on their own. Our life expectancy is higher, more people own their own homes, more people are graduating from colleges and technical schools. By any conceivable standard, life is better now for most people than it was just 20 years ago. Does anyone doubt that my daughter's generation will have a higher standard of living than my generation has had? I can't envision how it wouldn't. Yet we seem to be always looking for something better, some illusion that does not exist.

This is the patient leaping to embrace the disease and reject the cure. Recessions are fewer and weaker thanks in part to trade, yet whenever recessions appear on the horizon, politicians dive into their protectionist bunkers....

This is the irony of capitalism. It is not zero-sum, but it feels like it is. Capitalism coordinates humanity toward peaceful, productive cooperation, but it feels alienating. Collectivism does the opposite, at least when dreamed up on paper. The communes and collectives imploded in inefficiency, drowned in blood. The kibbutz lives on only as a tourist attraction, a baseball fantasy camp for nostalgic socialists. Meanwhile, billions have ridden capitalism out of poverty.

And yet the children of capitalism still whine.

We all seem to be capitalist until the moment in our lives where we aren't winning at the current stage of the game. Then we hear cries for a housing bailout, or government-controlled health care. At any given time, millions of people in this country stand to be losing at life. The temptation always exists for some politicians to prescribe a cure that is worse than the symptoms. I think we just need a good dose of freer markets and more capitalism. What do you think?