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.

Obama Flips on Tax Policy

For more by Scott Martin, go to Conservatism Today.

Barack Obama is making another massive flip-flop from his stated goals, this one on tax policy. Like all of his flips, it is easy to rip as a convenient switch in an attempt to win the election, but at the same time it feels bad ripping the guy when he's showing signs of gaining his sanity.

This is a pretty big change for Obamanomics. Economic advisers Austan Goolsbee and Jason Furman, in today's Wall Street Journal, now say that Barack Obama's tax plan will do the following:

1) It will increase capital gains and dividend tax rates, to 20 percent, only for families making over $250,000. Before, Obama was hinting at rates as high as 28 percent for everyone.

2) On the issue of the Social Security income cap, he's now considering a plan that would make folks earning over $250,000 pay in the range of 2 to 4 percentage points more in total (combined employer and employee) payroll taxes. Previously, there were hints at increases of from 6 percent to 12 percentage points.

Now certainly, any increase in taxes on the "rich" and on capital gains is likely to be disastrous, especially given the current slow economy. And he still will allow President Bush's tax cuts to expire, which will be the largest tax hike in American history. But at least he's realizing it's a losing issue for him and is adjusting it. Plus, the flip makes him look bad to supporters and non-supporters alike, and only serves to bring into focus just how far from mainstream he is to begin with.

As the author writes:

In 2009, the United States might be just emerging from a nasty downturn, only to get hit by a tax increase. Also, recent research shows that tax hikes may be less harmful if accompanied by spending cuts. Yet Obama is planning huge and specific spending increases matched by often vague spending reductions. Clintonomics was all about balancing the budget. This is not a priority for Obama.

So Obama is still a disaster. But he's getting better at trying not to be too open about it.