Why you shouldn't bash the rich

pro2A

Hell, It's about time!
#1
They pay for your free lunch. This is a good read... Link

David Kamerschen is a professor of Economics at the University of Georgia who has fun teaching economics to new students fresh to the field. Lots of people who teach economics, including yours truly, have used a variation of David's illustration over the years. It never fails to hit the mark -- if not Marx.

Econ 101 or its equivalent is usually a required course for most college students, most of whom groan when they are forced to take a class in the "dismal science". That's because they never were exposed to real-world lessons in economics when they were in grade school. If we begin to teach our children the facts about how things really work when they are 8 instead of 18, we'd get much smarter voters at 18 -- and far less mushy-thinking socialist "progressives".

Bar Stool Economics:

Let's suppose that a group of 10 graduate students regularly go out to a pub for beer, and the tab for the 10 comes to $100 total. If they pay for their bill the way Americans pay for our taxes (based on our so-called "progressive" tax system), the breakout would be like this:

The first 4 people (the poorest) pay nothing. They get to drink for free.

The fifth pays $1

The sixth pays $3

The seventh pays $7

The eighth pays $12

The ninth pays $18

The tenth person (the richest) pays $59.

Being good friends and liberal progressives, that's what they all agree to do. It seems only fair that each person should pay what they can afford to pay, remembering the old adage they learned in school: "from each according to his ability, to each according to his need" (Karl Marx).

Every few days, the 10 good friends would meet up in the pub and would pay up as agreed upon.

Then one day, the proprietor gave them a deal. "Since you are such good customers, from now on", he said, "I'm going to reduce the cost of your tab by $20. You can just pay me $80!"

Everyone wanted to continue to pay their bill just the same way as they had before. So the first four people (the poorest) are unaffected. They continue to get to drink for free.

But what about the remaining 6 people? How should they split up the unexpected $20 savings "windfall" so that everyone would get "his fair share"? They figured that $20 shared by 6 comes out to $3.33 each. But if they simply subtracted that amount from each of the 6 paying friends, then person #5 and person #6 would actually be paid to have their beers since person #5 only paid $1 anyway and person #6 only paid $3!

What to do?

The pub owner came to their rescue. He suggested that each person's bill should be reduced by roughly the same amount, and he used his calculator to work out what that should be:

Persons 1-4 continue to get to drink for free The fifth person, like the first four, now pays nothing and drinks for free (100% savings!) The sixth pays just $2 instead of the original $3 (33% savings!) The seventh pays just $5 instead of the original $7 (28% savings!) The eighth pays just $9 instead of the original $12 (25% savings!) The ninth pays just $15 instead of the original $18 (17% savings!) The tenth pays just $49 instead of the original $59 (16% savings!)

All 6 friends were better off then before. And their first four buddies continued to drink for free, because they didn't have a lot of money.

They all felt pretty good about it.

After they thanked the pub owner and left to walk back to campus, they began to compare their savings under this new deal.

The sixth person was very quiet, though. Finally he blurted out. "You know, splitting up the bill that way wasn't fair! I only got a dollar out of that $20 we all saved, and yet (he pointed to the tenth person) he got $10!"

"Hey, you're right", shouted the seventh person. "I got cheated too. I only saved 2 dollars. It's unfair that he got back 5 times more than me!"

"Damn it! I've been ripped off too", yelled the eighth. "Why should he get back $10 when I got back only $3. The wealthy get all the breaks!"

"Wait a minute", screamed friends one through four. "We didn't get anything at all! The system exploits the poor!"

The first nine people surrounded the tenth person and beat him up.

The next day, tempers had cooled down and the nine friends showed back up at the pub. They were sorry for what they had done and they wanted to apologize to their tenth friend.

But the tenth person didn't show up for drinks. So the nine proceeded to drink without him.

When it came time to pay the tab, they discovered that they had a problem. They didn't have enough money among all nine of them to pay for even half of the bill!

"And that, boys and girls, journalists and college professors, is how our tax system works", says Professor Kamershen. "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."

President Obama and the Democratically-controlled congress, good wannabe socialists all, should remember this lessen before all of the rich people (mostly Democrats, by the way, but that's the topic of another article) stop going to the pub with all their other good friends. Raising taxes using a "progressive" tax system penalizes the productive, wealthiest members of our society much more than the average taxpayer. And I'm against that even though it would hurt the many Democrat billionaires far more.

And once we tip over the edge where 50% of the population don't pay income tax at all (the first five "good friends"), we create an us-and-them mentality where the first five vote in the politicians they want to continue to get their beers for free.

But there's no such thing as a free lunch. Someone always pays. Until they can't or don't anymore.

John Galt couldn't have said it plainer.
 

Bananas

Endangered Species
#2
Why you shouldn't bash the rich
They pay for your free lunch.
...because you clean their toilets, wash their dishes and mop their floors. You should be grateful for the drink as it may be the only one you will get.

Also why does the group get a $20 discount..... maybe because without that discount the analogy does not work. The only reason a discount can be considered is with tax rebates and as far as I am aware the redistribution of taxes is not on par with the method put forward in the nice little over simplified story.

Progresive tax is a logical input to the progressive output of productivity, it is not the distribution of savings made.


I guess the only alternative is a return to manorialism where the first 4 people dont get a drink, the next 4 people get to share a drink, the 9th gets a whole drink and the 10th lords over them all with as much drink as he feels fit.
 

Nevyrmoore

AKA Ass-Bandit
#3
Honestly, I never really understood why the wealthy should be taxed more just because they make more. We have a similar system here. If you make £0-£37,400, you get placed on a basic tax rate of 20%. But the second you start making more than £37,400, your tax rate automatically rises to the higher rate of 40%.

That's right, you'll be paying almost half your earnings in taxes. The figures are fine if you're earning a hell of a lot, 40% of £1mil still leaves you with £600,000 which is nothing to sneeze at. But lets say you were originally earning exactly £37,400, that's works out to £7,480 in tax, leaves you with £29,920. Now lets give you a £100 pay rise. You're now paying £15,000 in tax, leaving you with £22,500, meaning you were better off with the lower pay rate.

And why? What exactly does it accomplish? All I see when I look at this is to never take a job over £37,400 unless it's around £49,900.
 

pro2A

Hell, It's about time!
#4
Honestly, I never really understood why the wealthy should be taxed more just because they make more. We have a similar system here. If you make £0-£37,400, you get placed on a basic tax rate of 20%. But the second you start making more than £37,400, your tax rate automatically rises to the higher rate of 40%.

That's right, you'll be paying almost half your earnings in taxes. The figures are fine if you're earning a hell of a lot, 40% of £1mil still leaves you with £600,000 which is nothing to sneeze at. But lets say you were originally earning exactly £37,400, that's works out to £7,480 in tax, leaves you with £29,920. Now lets give you a £100 pay rise. You're now paying £15,000 in tax, leaving you with £22,500, meaning you were better off with the lower pay rate.

And why? What exactly does it accomplish? All I see when I look at this is to never take a job over £37,400 unless it's around £49,900.
When you tax the rich more, they will mow their own yard, or clean their own pool. Normally they would hire someone to do it, but they aren't hurting so they do it themselves. And that's two jobs in the tank all because of high taxes.
 

Bananas

Endangered Species
#5
That's right, you'll be paying almost half your earnings in taxes. The figures are fine if you're earning a hell of a lot, 40% of £1mil still leaves you with £600,000 which is nothing to sneeze at. But lets say you were originally earning exactly £37,400, that's works out to £7,480 in tax, leaves you with £29,920. Now lets give you a £100 pay rise. You're now paying £15,000 in tax, leaving you with £22,500, meaning you were better off with the lower pay rate.
Thats not how progressive taxes work. It is not how much you earn, it is how many you earn. You pay 22% on the first £37k and thereafter you pay 40% on the pound.



For example(not all figures accurate) if you earn £40k it breaks down something like this;

The first £8k you earn you pay no tax. Total Taxes = £0
....the next £29k you pay 22%. Total taxes = £6k
....on the final £3k you pay 40%. Total taxes = £1.2k

8+29+3 = £40k earnt
0+6+1.2 = £7.2k taxed
Therefore you take home £32.8k

You will always be better off to be in a high tax band,because the more money you earn the more money you will take home.

A person earning £39k will take home £600 more than the person earning £38k.
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When you tax the rich more, they will mow their own yard, or clean their own pool. Normally they would hire someone to do it, but they aren't hurting so they do it themselves. And that's two jobs in the tank all because of high taxes.
That is nonsence we've have had a progressive tax system for decades, yet we still have jobs. Infact the most aggressive period of progressive taxes was the late 40's early 50's which incidentally ties in with one of the most productive periods in US history.

What exactly is it you are against about progressive taxes?

What would you propose as an alternative?
 
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pro2A

Hell, It's about time!
#6
I understand the math of it. What I am getting at is job creation. The rich have the money and create the jobs. When they are taxed more, its no loss to them, they just tighten their belts and lay people off or not hire people.

Or better yet, take their business to another country. How does that create jobs?

This whole recession was created on the back of a progressive tax code. Progressivism impedes growth like I have stated above. Capitalism if left unmolested will weed out what works and what doesn't.

Lowering tax rates increases wealth to everyone, including the government because there is no limit to wealth. New wealth is created where wealth did not exist before when a human acts on a resource and humans can only do that when they are free. Taxes are restrictions on freedom.

Our tax code rewards bad choices and punishes good ones. Russia has moved to a 13% flat tax. We have Karl Marx's tax system and Russia has Steve Forbes. If you don't see a problem here, you are probably a socialist.

Thats my issue with progressive taxes. The punish the do-gooders of society, and create laziness among the welfare recipients.
 
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icegoat63

Son of Liberty
V.I.P.
#7
That is nonsence we've have had a progressive tax system for decades, yet we still have jobs.
Its not nonsense in the slightest. Prior to the Economic downturn being felt here in California. My family employed 1)a Gardner 2) a Pool Guy 3) a Bug Guy and 4) an Arborist. Since times have been harder, My Dad stopped paying all of them and started having immediate family do it (no fiscal compensation). Could He have done the work prior? Well yeah obviously... but out of the kindness of my fathers heart he'd reached out to 4 different families in the community and offered them means for work and money.

Now that that offer doesnt exist due to the High taxes on his Business and just the otherwise negative effect the Economy has had on his personal business, nah, the Gardner and the Bug Guy.... they arent out of business, the Pool guy sadly is due to the astounding numbers of his clients that followed the same suit as my Dad, and the Arborist just closed shop and started a new business (gardening :hah:).

So you can bet that taking away fringe money does halt jobs, even though they may not be in the hundreds of thousands.... they do create negative effects.
 

pro2A

Hell, It's about time!
#8
California is a prime example of what progressive taxes to a state (or nation). California has been run by Democrats for decades and they pass the same ol' progressive tax code crap and they try to blame it on capitalism. Michigan is the same way.
 

Bananas

Endangered Species
#9
I understand the math of it. What I am getting at is job creation. The rich have the money and create the jobs.
It is the poor who create the money for the rich, if the rich do not create and maintain jobs then they will not be rich for long. If we go back in time to the Industrial revolution or the Americas and the columbian exchange, when a lot of people got very rich through job creation. these families created dynasties, some continued job creation and are still rich today, others exausted the wealth and are nobodies.

pro2A said:
When they are taxed more, its no loss to them, they just tighten their belts and lay people off or not hire people.
Why would they do this? there is no logic in this theory.

If the rich are taxed more the desire to earn more becomes greater as it requires more earnings to bolster the difference.


Here is hypothetical scenario/question;
Factory owner has 100 staff who have a productivity level of $5k per person, so therefore they earn him $500k a year. Of this he is taxed 20% and takes home $400k.

The government change the tax system and he is now taxed 40% and thus only takes home $300k. He is $100k down on his previous year.

What would be the best decision for him;
a.) lay off staff
b.) hire more staff
c.) no change

pro2A said:
Or better yet, take their business to another country. How does that create jobs?
This is an issue for corporation tax which is a whole different game. There are many benefits and pit falls to moving business to another country, taxes do play a role but I would not consider it a significant factor especially compared with wage costs and resources.
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Its not nonsense in the slightest.
.........Now that that offer doesnt exist due to the High taxes
It has nothing to do with taxes.

The economic downturn has little to do with a progressive tax system. Did your family lay off the staff becasue the total profits put them in a higher tax band than they were previous. basically did you lay off those staff because you earnt more money? .......otherwise I stand by words it is nonsence
 
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icegoat63

Son of Liberty
V.I.P.
#10
Sorry this'll probably be a double post, I accidentaly deleted this part but wanted to add my 2 cents!
~~~
What would you propose as an alternative?
I propose studying and deducing the Monetary Circular Flow Model (See here). In that model as you either already know or can easily assume, its an Economics instructors way of following a monetary unit. So I propose that if one market is to be protected and preserved, preferreably the "grass roots" market or the market of where it all starts can be protected, the others will flourish.

However the CFM doesnt make that the easiest task.... because its a Circle :hah:. Which brings me to the question of what drives a market and who really needs the money?

The People (lets call it Lower-Middle Class worker-Bees):

In my deduction, the people are a very integral part to the whole process. However they are not crucial in the sense that I believe they begin the whole process. If the people had money to start the process, there would be mass amounts of money to be spent on lack luster or poor grade objects. Investments could be made in the proper areas, however once they are invested there is little or no inspiration to work for more money. Which leads me to the next group.

The Businesses (lets call it Upper Class Rich Business owners):

They are the entrepeneurs, they see what the masses want and they want to capitalize off of it. Maybe they are selfish maybe they are not for giving the public what it wants. Regardless, the Business Owners will invest in a venture, spend the money to produce a crop, product, or service that the mass of people need. Then when that has been sold, they create more in order to cater to the undying wants & needs of the public.

Now what is the difference?

When the Businesses are inspired to produce another good, it costs a pretty penny. However once that good has been manufactured and released upon the Public, it creates that Demand. The Demand obviously lives up to its name and the People will find a way to build up enough monetary value to purchase said good. How do they do that? Well they are hired by said businessman to create said good on the plant. Because Businessman doesnt have the Factors of Production without having the Publics Labor Sold to him.


Now if you ask me, it understand the Circular Flow Model to best start at the Business end of the scale. Obviously once its moving, it requires the whole circle to flow. However In my best Educated guess; this is the reason that those Rich Business owners should not be treated with heightened taxes and harder costs. Because imagine what happens if they decided to just close shop and play it like the regular People do?
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It has nothing to do with taxes.

The economic downturn has little to do with a progressive tax system. Did your family lay off the staff becasue the total profits put them in a higher tax band than they were previous. basically did you lay off those staff because you earnt more money? .......otherwise I stand by words it is nonsence
You'll have to pardon me as I cant cite the exact taxes in which they are affected by. However, yes Taxes are at play here. Maybe they arent the Key figure, but regardless they are still there.

Those externalities were paid for by the business. And this last few waves of Tax hikes here in California for Businesses were just to much to handle and "the fat" needed to be cut off. So yes, initially those few job opportunity cuts were borne of Tax Related costs.

It doesnt take but a quick google search to find out about all the Business leaving California due to our Extremely high cost here thanks to taxes, regulations, and other ways for Cali to bleed a business dry. Even more will be leaving very soon as California is on the Verge of Bankruptcy.

(But on a positive note, we just had a state election and the small percentage of voters that did show expressed their disdain for Political Ignorance by Shooting down all of their New Tax Props designed so that we the Citizens would have to once again clean up our Politicians Messes 2009 California Election Results in Rebuke to Political Class - Associated Content)
 
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