Tuesday, March 20

Dan Mitchell - 'The Tax System Explained in Beer'

Dan Mitchell shares in his recent post 'The Tax System Explained in Beer' a great example showing just how messed up our tax system is:
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 ball.
“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 men would 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 ? How could they divide the $20 windfall so that everyone would get his fair share?
The bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.
  • And so the fifth man, like the first four, now paid nothing (100% saving).
  • The sixth now paid $2 instead of $3 (33% saving).
  • The seventh now paid $5 instead of $7 (28% saving).
  • The eighth now paid $9 instead of $12 (25% saving).
  • The ninth now paid $14 instead of $18 (22% saving).
  • The tenth now paid $49 instead of $59 (16% saving).
Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.
“I only got a dollar out of the $20 saving,” 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 benefit 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. This new tax 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 their 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 government ministers, is how our tax system works. The people who already pay the highest taxes will naturally 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. - International Liberty
There is a huge difference from the story and our tax status, as in the story, all the men voluntarily decided to share the bill and share it in a lopsided fashion. In the end, the richest man decided that the company was no longer worth the price and decided to no longer participate. This is not something that you can easily do with your tax bill. Instead the others, who all pay less, demand that those who earn more pay ever more to meet some mythical 'Fair Share'. You know what a fair share is? IT is where people simply pay their taxes and don't feel like they are being taken advantage of. And at that point, the desire, and incentive, to cheat on one's taxes (or simply avoid taxation) diminishes and disappears, no longer being seen as a worthwhile activity. 

Tax avoidance and tax evasion are present in our society simply because the scenario above is not fair. Not at all.

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Tuesday, March 13

ObamaCare - If a Corporation Did This, People Would Go To Jail

You sometime have to wonder just what would happen if our own politicians were forced to follow the standard and rules that officers of corporations need to follow. you know, the rules where they end up going to jail for breaking. Take this non-surprising news out today:
President Obama's national health care law will cost $1.76 trillion over a decade, according to a new projection released today by the Congressional Budget Office, rather than the $940 billion forecast when it was signed into law. Democrats employed many accounting tricks when they were pushing through the national health care legislation, the most egregious of which was to delay full implementation of the law until 2014, so it would appear cheaper under the CBO's standard ten-year budget window and, at least on paper, meet Obama's pledge that the legislation would cost "around $900 billion over 10 years." When the final CBO score came out before passage, critics noted that the true 10 year cost would be far higher than advertised once projections accounted for full implementation. - Washington Examiner
This is no surprise. The accounting tricks were put in by design as one of the main selling points of ObamaCare was that it was going to save money. This is a lie and it was a lie when it was told to the American people when they were trying to get the bill pass into law. 

Had a publicly traded corporation pull such financial shenanigans, the shareholders would be suing the officers and directors of the firm and the SEC and other parts of the Government would be digging through every corner of the corporation investigating the kinds of criminal charges they could bring against management and what kind of fines they could impose on the corporation. Take this recent example:
The government filed in federal court Monday a $25 billion settlement with the five largest mortgage lenders, putting an official stamp on the landmark agreement over alleged foreclosure abuses. The court papers offered few new details on the deal between the federal government, 49 states and Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc. and Ally Financial Inc. The deal was first announced last month. - Washington Post
This is what happens to banks for partly doing exactly what the Government wanted. It wasn't until the house of cards fell apart that they went looking for a fall guy. And what of the Government-sponsored entities who created the demand for crappy mortgages?:
The deal applies only to privately held mortgages and not to those owned by mortgage giants Fannie Mae and Freddie Mac. Banks own about half of all U.S. mortgages, or about 30 million loans; Fannie and Freddie own the other half. - Washington Post
You don't need to look far for other examples. Take the Department of Justice's arming of criminals through Fast and Furious. If Americans went and did this on their own, they would be thrown behind bars for the rest of their lives. So far the Government is protecting the Government 'servants' who were the masterminds of this criminal activity. Then take the issue of illegal aliens. As an employer, you're screwed if your caught with a company full of illegal aliens. And yet, those running the Government are doing everything possible to ensure that they are around to be able to look for jobs. 

This can't last. It won't. Just watch out when it all falls apart.As for the ObamaCare lie, people should be held accountable, starting with the President. The first step is voting him out come this fall.
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