smithfly114
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Why The U.S. Tax System Is Unfair

Subject: Economics

Sometimes Politicians can exclaim; "It's just a tax cut for the rich!", and it is just accepted to be fact. But what does that really mean? Just in case you are not completely clear on this issue, we hope the following will help.

Tax Cuts - A Simple Lesson In Economics

Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. 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 \$7.
The eighth \$12.
The ninth \$18.
The tenth man (the richest) would pay \$59.

So, that's what they decided to do.

The ten men ate dinner in the restaurant 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 meal by \$20."

So, now dinner for the ten only cost \$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 eat for free. But what about the other six, the paying customers? How could they divvy up the \$20 windfall so that everyone would get his 'fair share'?

The six men 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 eat their meal.

So, the restaurant 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 \$2 instead of \$3 (33% savings).
The seventh now paid \$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 eat 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 me!"

"That's true!!" shouted the seventh man. "Why should he get \$10 back when I got only \$2? ! 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 dinner, so the nine sat down and ate 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 at the table anymore. There are lots of good restaurants in Europe and the Caribbean.

David R. Kamerschen, Ph.D.
Distinguished Professor of Economics
536 Brooks Hall
University of Georgia

cfalk
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RE: Why The U.S. Tax System Is Unfair

It's a good, and pretty accurate account. Pity that it's not as politically acceptable or easy to mindlessly repeat than "Tax cuts for the rich".

Charles
The only thing you should feel when shooting a terrorist: Recoil.

Alpha 1
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RE: Why The U.S. Tax System Is Unfair

You forgot one thing: the 10th one spent a lot of money on a tax lawyer to find all the loopholes in the laws, so that instead of paying \$49, as you say, he ends up paying \$9. That's a reality for many wealthy people. They don't end up paying taxes that they should because of loopholes. That's why the system is unfair.

smithfly114
Topic Author
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RE: Why The U.S. Tax System Is Unfair

Sorry but there is no loophole when 50% of your paycheck goes right over to uncle sam.

zak
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RE: Why The U.S. Tax System Is Unfair

what a bad attempt at justifying tax cuts for the rich. the above model does not take a few key facts into account, such as the lower amount of rich people. if you add 100 guys that were to pay the 3\$ bracket of the bill, you would still have a severe overrepresentation of the rich in above model, and it would already make them lose out most.
also, especially in countries with low social security and minimum wages such as the u.s.a., the fact that most of the "riches" of the rich people were made on the backs of poorly paid peasants needs to be taken into account aswell, hence giving reasoning for a substantially higher taxation of rich people to ensure the social responsibility is maintained by them.
if you dont do that you have a society moving back towards the medieval, where rich people are getting endlessly richer and poor people dont exactly reduce in numbers. but wait, i think that is what is happening under the cover of globalization right now! how does anybody dare to oppose the new religion of globalized profit for the upper class.

p.s.
before bringing up arguments like "you are just jealous", i come from a rather wealhly background, its more that i rather know how it works that makes me think like that, unlike people who believe in the globalization miracle without understanding it (or thinking they understand it because they read a book about adam smith in college)
10=2

cfalk
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RE: Why The U.S. Tax System Is Unfair

That's an exagguration, Alpha. Typically, a high-flight lawyer will be able to cut the tax about in half (\$29.50), but much of that is simply tax deferment rather than tax evasion or tax avoidance (at least if only legal methods were used). A deferment simply delays when you have to pay the tax, such as investing in a locked retirement fund.

But I am in favor of cutting out most tax exemptions. To me, the comprehensive tax code for individual income tax should be able to fit in a booklet, say 10 to 20 pages long. The tax form itself should be no more than a couple of pages.

Charles
The only thing you should feel when shooting a terrorist: Recoil.

zak
Posts: 1926
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RE: Why The U.S. Tax System Is Unfair

i almost forgot to mention it:
i fully agree with the topic, the u.s. tax system is unfair, but to anyone not rather wealthy or rich.
10=2

Ralgha
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RE: Why The U.S. Tax System Is Unfair

What Alpha1 is saying is that 50% of their paycheck doesn't go right over to Uncle Sam because of loopholes they've found.
09 F9 11 02 9D 74 E3 5B D8 41 56 C5 63 56 88 C0

smithfly114
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RE: Why The U.S. Tax System Is Unfair

So who here would favor a flat tax across the boards? This is the only logical system I see...

cptkrell
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RE: Why The U.S. Tax System Is Unfair

Who would favor a flat tax? Probably most everybody except accountants; their ranks would surely dwindle. Regards...Jack
all best; jack

smithfly114
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RE: Why The U.S. Tax System Is Unfair

I don’t blame the wealthy for not wanting to pay a ridiculous amount of their salary. They have made the money in a free market economy where a transaction will only occur if BOTH parties benefit.

donder10
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RE: Why The U.S. Tax System Is Unfair

if you dont do that you have a society moving back towards the medieval, where rich people are getting endlessly richer and poor people dont exactly reduce in numbers. but wait, i think that is what is happening under the cover of globalization right now! how does anybody dare to oppose the new religion of globalized profit for the upper class.

Perhaps you should read some David Ricardo

smithfly114
Topic Author
Posts: 236
Joined: Wed Mar 03, 2004 12:00 pm

RE: Why The U.S. Tax System Is Unfair

We can argue all day about how "the rich get richer and the poor get poorer," but so many people fail to realize that if BOTH parties participating in a transaction do not feel they are benefiting, or if the costs outweigh the benefits then the transaction will not occur. Lets take for example migrant workers from Mexico into CA. The argument is made that the workers are exploited and taken advantage of. (In not here to argue if they are or not) But the fact is those workers who came to CA to work, see that change as a benefit to them! The benefits of that move outweigh the costs, or else they would not be there! This is the way our entire free market economy works, if both parties don’t benefit from a transaction, the transaction will not take place. PERIOD

-CCS

aloges
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RE: Why The U.S. Tax System Is Unfair

Let me counter this with an even simpler scenario:

A factory owner employs 200 people that earn 2.000 dollars a month. That's 400.000 dollars of wages each month. The income of the factory, with all costs being deducted, is 500.000 dollars per month. The factory earns its owner 100.000 dollars in a month.

But the factory owner decides that this isn't enough, he just needs that sparkling new yacht and has to find a way he can afford it. So he decides that his factory must earn him more money, one way or the other. He thinks about cutting wages, but that wouldn't fit the idea of what his image has to be. There has to be another way.

One day, the factory owner wakes up and has a flash of genius - that machine he saw some time ago has to be the best invention ever! He checks what it could do for his factory and comes up with the following equation:

• The machine will cost him 500.000 dollars.

• It can render 80 workers unnecessary.

• If 80 workers can be "laid off" (a.k.a. "fired"), that will save 160.000 dollars a month.

• At that rate, the new machine will be paid for in 3,125 months.

• However, the workers have recently demanded a raise - so the factory owner thinks to himself "Well, I can wait a little longer until I get my yacht." and agrees to give the workers a huge 5% raise. He also decides to buy the machine and lay off those 80 workers.

He continues with 120 workers earning 2.100 dollars per month, so wage costs are now 252.000 dollars a month - that's a 148.000 dollars saving. At that rate, the machine will be paid for in about 3,38 months. After that period, the factory owner will earn 248.000 dollars a month instead of 100.000 dollars a month. He has appeased his workers because he gave them a raise, has been praised by analysts for cutting production costs, and has been applauded by local authorities for his commitment to the location of his business. Basically, everyone loves him and he will be able to buy that fancy yacht.

But where's the hitch? Well, you have to look at those 80 workers. They are 80 more people who can't pay a dime at the restaurant. And the factory owner claims he deserves a tax cut because he did so much for his employees, and thus for the country.
Don't cry because it's over, smile because it happened.

donder10
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RE: Why The U.S. Tax System Is Unfair

But where's the hitch? Well, you have to look at those 80 workers. They are 80 more people who can't pay a dime at the restaurant. And the factory owner claims he deserves a tax cut because he did so much for his employees, and thus for the country.

The same argument that is being used with the current ''outsourcing stampede''.Technological process has never resulted in creating long-term unemployment in industralised economies.

aloges
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RE: Why The U.S. Tax System Is Unfair

CCS, what you wrote is basically true for "first world" economies. In those, most people can choose between accepting a deal and not accepting it because they know they can survive with or without it, and they have alternatives. The state will pay for them if they get into too deep trouble.

But when you look at "third world" countries, it's a different story. First of all, many people in those countries simply don't know the difference between a good deal and a bad deal. In other words, they are extremely vulnerable to persuasion. One example that comes to my mind is that of Indian farmers buying "hi-tech seeds". They were told that those seeds would improve their crops, and that the higher cost of those seeds would forever be outbalanced by higher earnings due to better crops. The farmers thought "Hey, what a good thing! We'll earn money!" and bought the seeds. They also used up the reserves of "old fashioned" seeds because they a) wouldn't need them anymore and b) couldn't store them forever.

Once the company had gained a de facto monopoly, they remembered what they had gone to India for: profit. But those farmers weren't paying "enough" for the seeds, and the company wasn't making a big enough profit. So the company raised its prices, and the farmers had to pay more for the seeds. Of course, they tried to use the surpluses of their crops to seed, like they had always done. Pity that nobody had told them that the seeds were so hi-tech that that wouldn't work. So the farmers had to pay prices that they couldn't afford, and thus make sure the company made a profit. They were so concerned about the company's profit that they started to sell their "surplus" kidneys once their financial reserves had been exhausted.
Don't cry because it's over, smile because it happened.

aloges
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RE: Why The U.S. Tax System Is Unfair

"Technological process has never resulted in creating long-term unemployment in industralised economies."

Donder10, nothing like wiping a deliberate scenario off the table with a one-liner, huh?
Don't cry because it's over, smile because it happened.

smithfly114
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RE: Why The U.S. Tax System Is Unfair

Aloges:

First of all are you talking about Native Americans or citizens of India?

I understand what you are saying but you are bringing in another issues I wasn’t, you are including Lying. I was just talking about one straight forward issues compared to another, of course if there is fraud going on it is going to be a different story. Also this company that was supplying the "high-tech" seeds, they were the only company in the world willing to supply seeds them? I find that hard to believe.

aloges
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RE: Why The U.S. Tax System Is Unfair

I'm talking about citizens of India.

The sad thing about globalisation is that it almost always goes hand in hand with lying, fraud, double standards, greed of gain and overreaching. For example, both the EU and the US have come up with incredible lots of protectionist laws just to protect their economies from the otherwise sacred "beneficent" effects of globalisation. If everyone in favour of globalisation was as straightforward as the theory sounds, you'd be talking to one of its greatest admirers right now.

"Also this company that was supplying the "high-tech" seeds, they were the only company in the world willing to supply seeds them? I find that hard to believe."

Certainly not, but that company was the one who persuaded the farmers into buying the seeds. And once a company is supplying seeds to a relatively large region of a country the size of India, things get tricky. I also don't recall if the farmers signed some kind of treaty that obliged them to buy seeds from that company.
Don't cry because it's over, smile because it happened.

smithfly114
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RE: Why The U.S. Tax System Is Unfair

Well that is interesting. I didn’t know the story about the farmers in India. I’m not saying I am a fan of globalization. In fact if I had it my way, the US would become totally self sufficient and become isolationist from the rest of this world. ( I know there is alot of baggage that goes along with that)
All I am saying is that our (inside our country) economic system in the free market form (withOUT market control items such as rent control, price ceilings and floors) is a wonderful system and benefits everyone when working correctly, of course without lying and fraud
-CCS

aloges
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RE: Why The U.S. Tax System Is Unfair

BTW, I just found an article from May 2001 that describes what I was trying to describe: http://www.poptel.org.uk/panap/latest/mondia.htm.
Don't cry because it's over, smile because it happened.

smithfly114
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RE: Why The U.S. Tax System Is Unfair

Aloges:

Thanks for the article and thanks for the great conversation. It is so refreshing to have a conversation with someone from an opposing viewpoint, and rather than the issue becoming hostile, learning new things and having a stimulating conversation.

Congrats on joining my Respected Users list
Thanks
-CCS

jamesag96
Posts: 2007
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RE: Why The U.S. Tax System Is Unfair

Sorry Aloges, you neglect to mention that the factory owners competitors have already purchased the new equipment and are going to run him out of business soon, much less prohibit him from purchasing the creature comforts he wants.

Why Kate, You're not wearing a bustle. How lewd.

aloges
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RE: Why The U.S. Tax System Is Unfair

Jamesag96, why not think out of the box for a second? What would happen if the "factory owner" stood for all employers in the world, and his employees stood for the workforce of the entire world?

Smithfly114, glad to let you know there's still room on my RU list to continue that little policy of mine.
Don't cry because it's over, smile because it happened.

donder10
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RE: Why The U.S. Tax System Is Unfair

Or that the new technology will increase productivity and thus overall economic output which in turn creates new jobs for those made unemployed by the initial labour-capital substitution.

The sad thing about globalisation is that it almost always goes hand in hand with lying, fraud, double standards, greed of gain and overreaching.
More like the other way round,surely,especially when one considers the growth of trade between high and medium income countries.

If everyone in favour of globalisation was as straightforward as the theory sounds, you'd be talking to one of its greatest admirers right now
The problem of mixing politics and global economics.

jamesag96
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RE: Why The U.S. Tax System Is Unfair

Aloges...you mean workers of the world unite type of stuff...

Why Kate, You're not wearing a bustle. How lewd.

Alpha 1
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RE: Why The U.S. Tax System Is Unfair

To me, the comprehensive tax code for individual income tax should be able to fit in a booklet, say 10 to 20 pages long. The tax form itself should be no more than a couple of pages.

We agree 100% on that CFalk. The tax code is an absolute joke the way it is now.

MD11Engineer
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RE: Why The U.S. Tax System Is Unfair

The same goes for Germany. As a blue collar worker ( though on the upper levels of income) I don´t see that I get taxed at almost 50% (which includes my social security and health insurance payments), while huge companies like Siemens almost pay no tax at all due to legal loop holes, and if there is a tthreat that these loopholes will be closed they blackmail the government by threatening to move their factories abroad and to lay off their German staff. I understand that the government (which after all has been elected by us) needs a certain amount of money to perform their duties. But the current system is too easily abused. Why does a governmental health insurance have to provide yoga classes?
It should deliver the minimum health care necessary, so that the people won´t die. The same goes for the social security system. Everybody knows that the German pension system will need cutbacks or it will go bust. But to appease the current pennsioners and those who are in the 50-60 year age bracket, pensions for them will stay the same and they still get the old enticement for early retirement, while I pay their pensions, but when I reach retirement age, I probably won´t receive a pension at all or it will be so little I can´t live off it. I´d rather invest the money compulsory taken off my salary.

Jan
Je Suis Charlie et je suis Ahmet aussi

jamesag96
Posts: 2007
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RE: Why The U.S. Tax System Is Unfair

MD11Engineer has it right.

Why Kate, You're not wearing a bustle. How lewd.

B2707SST
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RE: Why The U.S. Tax System Is Unfair

Aloges -

Technological developments may temporarily throw certain groups out of work, but they are undoubtedly positive in the long term. In the example you gave, the factory owner buys a new yacht. Yachts, BMWs, etc. are often given as an example of frivolous spending by the rich, but it takes people to build yachts and BMWs. If all factory owners started buying yachts, jobs would be created in the ship-building industry to replace those in manufacturing.

Sure, there would be some temporary structural unemployment as workers migrate across industries, but this is inevitable in any dynamic economy. More importantly, more capital equipment raises labor productivity, meaning we get more stuff with less work. Higher productivity is the reason industrialized nations are better off than poorer countries, and better off than they themselves were 100 or 200 years ago.

I'll give you a case in point that has become famous among economists. In 1990, Bush I and Congress were trying to balance the budget, and they came up with a tax on "luxury vehicles," including yachts. The intention was to soak the rich with taxes they could afford to pay. Instead, when the price of yachts went up, the rich either bought and registered their pleasure boats overseas, or bought some other substitute good. Sales of yachts collapsed and forced many shipbuilders to lay off workers. Not only were yacht tax revenues much lower than predicted, but the government had to pay out far, far more in unemployment benefits to the thousands of people that its own tax had thrown out of work!

People can gripe about the rich spending their money on worthless playthings, but tell that to the middle-class workers who build them.

--B2707SST
Keynes is dead and we are living in his long run.

smithfly114
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RE: Why The U.S. Tax System Is Unfair

Bingo! Hit the nail on the head there --B2707SST. What a breath of fresh air!

cptkrell
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RE: Why The U.S. Tax System Is Unfair

B2707SST's example is an historic (and true) study of the failure of an imposed luxury tax. Actually, the results were a bit worse; some yacht companies actually went bankrupt leaving everybody out in the cold including some owners/management that put their own funds back into trying to keep the doors open.

But back to the, I think, original thrust of the topic to which I agree with Cfalk and AlphaI's observation that the US individual income tax system hopelessly overtaxes (pun intended) even the mathematically proficient. A simplified flat-rate tax (with very few deductions; an "x" amount deduction for each child, for example) would go a long way to streamline the system, and if we are to believe several models proposed in the past, would help keep the government coffers flush even considering large amounts of waste.

As far as the number of accountants and tax attorneys that would be harder pressed to keep gainfully employed, well, let them train in another industry as many of them so dearly like to tell others who's job has been replaced.

I can remember that my mother never had to have a job. Our family, as well as many other families in that era, simply didn't have to maintain two (or more) jobs because they simply weren't taxed into it as so many are nowadays. MD11eng's situation is all too familiar. It sounds that the total individual tax burden in Germany is similar to the percentage I calculate when I add all the taxes together for myself in the US.

How do tax burdens in other countries compare? Regards...Jack
all best; jack

zak
Posts: 1926
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RE: Why The U.S. Tax System Is Unfair

a flawed theory to begin with and a bunch of one liners and incoherent examples and we got another thread where the myth of "the lower and middle class should be grateful that they manufacture the goods for the upper class" is being promoted.
10=2

smithfly114
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RE: Why The U.S. Tax System Is Unfair

ZAK: you just gave an example of the problem you "claim" is wrong with this post. Flawed theory? How so? How can you dispute the argument that Cptkrell and B2707SST just made? and if you are going to - prove it with an example

aloges
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RE: Why The U.S. Tax System Is Unfair

Good to see that people are going more into depth in this thread.

I happily admit that my example of people being laid off was more superficial than it could have been, which has been proven rather nicely. In fact, "luxurious playthings" such as custom yachts and custom business jets may on the one hand be the epitome of social imbalance, but on the other hand they provide better possibilities for the general public to gain from a rich person's wealth than any castle, crown jewel or mink coat could have provided.

First of all, it takes a lot of paid manpower to make anything "custom". There's your job opportunity. Second, every yacht, not to mention a bizjet, needs to be serviced and maintained. Another job opportunity.

But there's also a part that annoys the hell out of me. Look at the registrations of those fancy BBJs. Most start with VP-B (Bermuda) or something. So why on earth does almost each and every new-rich yokel forget about the place that earned him his millions and think to himself that he doesn't need to pay taxes on his toys?

I fear that this is simply the way capitalism goes when people forget that they can't only take, but also have to give - the rich take their money where they want, and the poor are left to find out what to do. Whoever said that "Greed is good!" deserves to be sent to moon, with a one-way ticket.
Don't cry because it's over, smile because it happened.

airplay
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RE: Why The U.S. Tax System Is Unfair

There are lots of good restaurants in Europe and the Caribbean.

And that is exactly what many of the rich are doing these days. They pack up and invest offshore. They want to recoup the tax hit they take back home, but don't want to lose the market.

Rich people don't magically get rich. They must exploit the every day grunt. And many abhor the thought of supporting the infrastructure that enables the "grunts" to spend money.

When you start paying 59% we're not talking about taxes that will severely prevent you from enjoying life. If corporations keep taking without giving, perhaps its the middle class that will start to be absent from the table...

smithfly114
Topic Author
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RE: Why The U.S. Tax System Is Unfair

Who the hell in their right mind would be ok with paying that, when no one else gets taxed nearly that? They made the money why should they be obligated to pay more?

cptkrell
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RE: Why The U.S. Tax System Is Unfair

Yeah, I'm kinda hoping that Airplay's "59%" was a typo. That's nutso, Regards...Jack
all best; jack

MD11Engineer
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RE: Why The U.S. Tax System Is Unfair

What p*sses me off is that, at least here in Germany, 30-40 years ago an average CEO would earn about 10 timesas much as a skilled worker and he would take care of his main asset, his work force. Today 100 times is more common, and the share holder value is the only goal.
Additionaly we had some cases lately, where companies faced a hostile take over, with layoffs threatening afterwards, and the CEOs were fighting it, until the attacking company offered them a multimillion severance payment. Then they dropped all defenses and let their employees line up in labour office.

Jan
Je Suis Charlie et je suis Ahmet aussi

aloges
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RE: Why The U.S. Tax System Is Unfair

Aaaahhhh, the tuneful repercussions of the Vodafone / Mannesmann "Schmierenkomödie"...
Don't cry because it's over, smile because it happened.

MD11Engineer
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RE: Why The U.S. Tax System Is Unfair

This time last year I was wondering if I would still have a job at April 1st, when our ex boss f*cked off and wasn´t seen anymore with our private pension funds and lots of money he owed us (expenses, overtime, etc. ...) >  .
A court of justice declared our company bankrupt, but fortunately our reputation in A/C maintenance was very good, so the whole team got taken over by another firm. Still we lost a lot of money each.

Jan
Je Suis Charlie et je suis Ahmet aussi

aloges
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RE: Why The U.S. Tax System Is Unfair

I guess you got to play your very own role in a similar "business case"?
Don't cry because it's over, smile because it happened.

MD11Engineer
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RE: Why The U.S. Tax System Is Unfair

Aloges,

What do you mean?

Jan
Je Suis Charlie et je suis Ahmet aussi

aloges
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RE: Why The U.S. Tax System Is Unfair

Well, when I read reply 38, I immediately thought of Vodafuck / Mann-oh-Mann. But reply 40 sounded as though you were caught in a similar situation as the Mannesmann employees.
Don't cry because it's over, smile because it happened.

MD11Engineer
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RE: Why The U.S. Tax System Is Unfair

No, this guy just cheated everybody, customers, suppliers and workers. He didn´tn listen to his staff and when the sh*t hit the fan he disappeared.

Jan
Je Suis Charlie et je suis Ahmet aussi

donder10
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RE: Why The U.S. Tax System Is Unfair

We agree 100% on that CFalk. The tax code is an absolute joke the way it is now
Couldn't agree more.Simplification of the tax code (including trade tax)should be a key reform in many countries.The UK's government currently has a penchant for making the tax code increasingly complicated.

Zak,
a flawed theory to begin with and a bunch of one liners and incoherent examples and we got another thread where the myth of "the lower and middle class should be grateful that they manufacture the goods for the upper class" is being promoted.

Firstly,the system doesn't seem to be ''flawed'' given the level of prosperity that US citizens enjoy,especially so when you consider the number of poor migrants the US has taken in over time.

zak
Posts: 1926
Joined: Mon Sep 22, 2003 12:17 pm

RE: Why The U.S. Tax System Is Unfair

@donder10
i was not referring to the system to be flawed but the initial thesis in the posting. it takes 10 people or so and equals each to a certain income. so you have a society of 10/10ths where each income bracket makes up 10%. you have 4/10ths of people "getting a free ride" and 1/10th who pay over half of the bill due to their level of taxation. this does simply not correlate with reality. 40% are not welfare recieving bums and 10% are not super rich. it blows up the two extremists of society to prove whatever point the author tried to make(tax cuts for the rich are good for everyone).

"Firstly,the system doesn't seem to be ''flawed'' given the level of prosperity that US citizens enjoy"

a few thoughts to kick around:

In 1960 CEOs received 40 times the average worker's salary. In 1992 they received 157 times.

Amount of every earned dollar paid in taxes by citizens 1990: 13 cents
Amount of every earned dollar paid in taxes by citizens 1997: 15 cents
Amount of every earned dollar paid in taxes by corporations 1990: 26 cents
Amount of every earned dollar paid in taxes by corporations 1997: 20 cents
[New York Times]

In the late 1970s, the top one percent of the US population held 13 percent of the wealth; in 1995 it held 38 percent. (Levy, Frank. The New Dollars and Dreams ).

One percent of the U.S. population owns sixty percent of the stock and forty percent of the total wealth. (Hawken, Paul, The Ecology of Commerce: A Declaration of Sustainability. New York: HarperBusiness, 1993).

there are many factors to this, and there is one theoretically viable solution (however lobby groups would NEVER EVER allow it to pass through any legislation since it would ruin their cashcow scheme) and that would be the so called "tobin tax".
prevent multinational cooperations to move their money to where they dont pay taxes.
here is a brief background from http://www.ceedweb.org/iirp/factsheet.htm , just google on it for other sources:

What are Tobin Taxes?

They are simple sales taxes on currency trades across borders. The original proposal came from James Tobin, Ph.D., a Nobel laureate economist at Yale, but economists have since refined his approach. Tobin Taxes can be enacted domestically by national legislatures, but will require multilateral cooperation to be effectively enforced... Political will for passage is the major obstacle to be overcome, by citizen mobilization...

The proposal is important due to its potential to prevent financial crises. Also, the estimated \$100 - \$300 billion per year makes it possible to meet urgent global priorities, such as preventing global warming, disease, and poverty. Help turn the tide towards global solutions in the 21st century...
How Tobin-style Taxes would work:

Currency speculators trade over \$1.8 trillion dollars each day across borders. The market is huge, and volatile.
Each trade would be taxed at 0.1 to 0.25 percent of volume (about 10 to 25 cents per hundred dollars)
This would discourage short-term currency trades,about 90 percent speculative, but leave long-term productive investments intact.
The currency market would thus shrink in volume, helping to restore national economic autonomy. Nations again could intervene effectively to protect their own currency from devaluation and financial crisis.
Billions in revenue, estimated at \$100 - \$300 billion per year, would be generated.
Revenue could go into earmarked trust funds to fund urgent international priorities.
10=2

B2707SST
Posts: 1264
Joined: Wed Apr 23, 2003 5:25 am

RE: Why The U.S. Tax System Is Unfair

The currency market would thus shrink in volume, helping to restore national economic autonomy.

It's incomprehensible that a Nobel laureate would not understand the benefits of international trade as laid out by David Ricardo almost 200 years ago. National economic autonomy (called autarky in economics) is neither possible nor desirable. One might call for individual autarky -- that is, you get to produce everything you consume by yourself -- with equal justification.

The "Green" argument for small, self-sufficient communities is utter nonsense. Pause and think for a moment about the huge number of goods you use every day, and the unimaginably complex production processes that brought them to you. Do you want to learn how to do all that yourself? I'm not just talking about "luxuries" like computers and cars, but essentials of survival like food, clothing, and medicine. Communal autarky would result in a catastrophic drop in our standard of living, if not the outright starvation of most individuals.

The prosperity of modern civilization is built on higher productivity due to the intranational and international division of labor. The more we renounce this philosophy and embrace economic isolationism, the further we will regress toward the Stone Age environment of absolute universal poverty.

Nations again could intervene effectively to protect their own currency from devaluation and financial crisis.

Given that virtually all currency crises are caused by government policies in the first place -- rapid increases in the money supply, pegging currencies at artificial levels, exchange-rate interventions, rampant foreign borrowing, debt defaults, etc. -- I fail to see how this is a viable policy goal.

In essence, it sounds like the Tobin Tax proponents want governments to be able to do anything they want to their monetary systems, and then restrain the market forces that hold them accountable.

--B2707SST

[Edited 2004-03-08 01:23:41]
Keynes is dead and we are living in his long run.

cptkrell
Posts: 3186
Joined: Sun Sep 23, 2001 10:50 pm

RE: Why The U.S. Tax System Is Unfair

Zak; interesting figures albeit somewhat dated. I remember a discussion with a colleague back around two years ago where I jotted down the numbers (but not the source) that the wealthiest 1% of Americans pay nearly 1/3 of all income taxes and the wealthiest 10% pay about 2/3 of all same.

Even if scewed for argumentative one-upsmanship, do you really think that any ratio even near 1% paying approx. 30 percent and 10% paying approx. 65 percent of the burden is a legitimate issue?

"Tax reductions" for the "rich"?. Has any politician actually defined what exact amount labels one "rich"? I should imagine that such labels are mostly designed to inflame those that feel for one reason ar another disenfranchised with the "system" because they aren't "getting their fair share".

I rather liked being invited on my (former) bosses' million-plus boat, and even liked unloading a case of big-time adult beverages from his new Ferrari at the yacht club. And it didn't bother me a bit that his salary was probably 75 times what he was paying me. It's nonproductive engaging in class warfare; I just worked a bit harder, eventually went to another job and climbed my ladder there without worrying about what percentile I (or anybody else for that matter) was in. Regrads...Jack

all best; jack

smithfly114
Topic Author
Posts: 236
Joined: Wed Mar 03, 2004 12:00 pm

RE: Why The U.S. Tax System Is Unfair

Beautifully stated Cptkrell!

Thus reemphasizing the "American Dream"

-CCS

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