Monday, October 08, 2007

Will Franklin Gets The Tax Codes Just About Right

He makes a lot of good points. Like the "Men at a bar" fable.
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.
...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).

However, he ends it a different way. He ends it that the 9 other guys get mad that the wealthiest guy saves $10 (16% savings) and beat him up. In the story I heard the wealthiest 2 guys just up and left, leaving the $100 tab to the other 8 people.

Will also points out that in 2005 the top 1% of earners paid 39.4%, the top 5% paid 59.7%, the top 10% paid 70.3%, and the top 50% pay 96.9% of all income related taxes in the united states.

However what Will messes up is the statistic about the lower 50%.
He shows that although the lower 50% earns 12.8% of the wealth in America, and they pay only 3.1%

Will, you forgot that there is a percentage of people who pay $0 (or get money back) in federal income taxes;

So the real statistic is that 9% of the US population pay 3.1% of the federal income taxes, with an average of only $2402.60 per household in net paid income taxes for the year.

The average amount of taxes paid by the top 1%? Over $756,000 EACH. That's 31,472% more than average for the lowest 9% of the country that actually pays a net income tax.

You know what's even more interesting? That since the Bush tax cuts in 2001, the number of "non-payers" has increased from 25% in 2001 to 41% in 2006. That means that means that an additional 21,760,000 households now pay $0 or get back money from the federal government.

Who says that the Bush tax cuts hurt the lower income earners?