UNDERSTANDING TAX CUTS 1.01

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

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 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.[/align] 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 would 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 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 R2 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 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, don't protect them against crime (like in South Africa), and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.



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response from another member:

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by
name withheld

The whole bar scenario has always had one big flaw… The bar is in debt to begin with and the cost of the drinks actually comes to a total of $95. When the owner of the Republican bar lowers the price of drinks because he is afraid his patrons will visit the Democrat bar down the street (or other way around, it really makes no difference) he is in effect losing $15 on each transaction. Because he is losing money on each transaction he has to borrow money. This causes him to lose even more money on each transaction because now the drinks actually cost $98 dollars a round when you factor in cost of interest.

See the cycle – if only he would have left the drinks at $100 or maybe even raised them slightly to $102 – he would have been able to start paying down his debt, and start paying less interest, and perhaps add peanuts. His cost of a round of drinks (and even a few peanuts) would have gone down to $93. Perhaps then, he could start looking at lowering his cost of drinks to say, something prudent, like $98.50. Now, would the high roller still be drinking there – yes, if the other bar down the street also realized the foolishness of borrowing against funds that aren’t in the bank yet. Even with the increase – his share of the increase would come to less than $.50, would this affect his spending habits – perhaps, but actually very doubtful. And, if in 2 years he would be getting a part of that back – say his take on the $1.50 savings split would be $.33, he would be happy –

And, most important, the bar would remain open, and not owned by Chinese nationals!!!

 

Yes, of course you are correct on the numbers but the mentioned flaw has been considered by the bar owner.

You see, the liquor distributor has this unwritten arrangement that for every 5 cases delivered to the bar, one extra case is left by careless driver and that case is of course, not in the books.

By the bar selling more drinks at a loss of $15, he is actually netting $5. Remember the extra case? Not in the books? That is 20% is pure profit, non-taxable profit. remember, no profit no tax. 15% of it goes to buy the next case, the remainder is pocketed.

Additionally, the funds on loan .. well .. isnt clear that the bar Corp borrowed the funds from the bank account of the CEO which just happens to be the owner of the bar?

What do we have now? We got a 5% profit that must be done away with,
by raising the loan interest and possibly giving the loyal customers a break to motivate more consumption followed by a hefty increase in the cash flow of the Corp. The liquor distributor reports the extra cases as losses in the books.

There is a common mis-understanding that people get rich on profits. Not the case. Cash Flow is better, much better. Ask Trump.

 

response from another member:

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You are assuming that the liquor gets delivered by Careless Charlie, when actually Dishonest Dan has just taken over the route – he actually siphons about 2 drinks worth of liquor out of each bottle, which, in fact, leaves the bar owner with one less bottle in each case.

Suddenly the bar owner has to deal with off – budget items – and the bank that the owner/CEO just was bought out by JP Morgan at $5.00 a share. His loan is now being scrutinized, and even the peanuts are off the table.

Suddenly – the bar owner down the street decides to have a military coup – they overthrow the benign socialist regime and in its place set up a military despot… Our bar owner decides that the block can’t handle yet another military dictatorship – and so, he decides he needs to send a bottle out of each case to the original bar employees so they can raise the cash to buy additional cork screws and overthrow General Stolichnaya.

Our poor bar owner is down 2 bottles in each case – and since he has bought them on credit – he is scrambling to make ends meet, and so fires the night crew, forcing the daytime crew to work 4 additional hours – the daytime crew is talking revolt.

Economic problems are so complex, cash flow can make you tons of money – if the bets go your way – the problem is, it is still a gamble, with money that isn’t your own.





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ahah .. bar owner knew this all along. but since each case had 24 bottles (jumbo cases), it worked out just fine. There were no assumptions, as I mentioned it, it was a unwritten agreement.

Thanks to JP Morgan, now the CEO / bar owner can buy the Allante of his dreams. Not bad, $5 / share for stock that was valued at $1.23 .. not bad at all. How many? I believe they were talking 10,000 shares.

Did I mention that JP Morgan also assumed the existing loans?
One SOB of a CEO/bar owner, cash and income.

Next step is to re-invest and avoid paying undue taxes. Oh, he also made a call to the IRS and informed as to how his competitor was making a few extra $$$.
He now gets a 10% finders reward of what the IRS collects.

What a country ! Dont you love it?








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