Interesting Tax Perspective

An interesting perspective, TAX review ;

This is an email sent to me yesterday, that typically sums up what happens to your taxed dollar.

Here is a simplified explanation on how tax in Australia and parts of the world is applied to the population.

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 - the paying customers?

How could they divide the $20 windfall so that everyone would get his fair share?

They realised 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 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.

_______________

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.


[edit on 6/7/2010 by scubagravy]

I guess this could apply to Kevin Rudds mining tax, now in the hands of Julia Gillard.

Tax Tax Tax, the confusing monetary system.

reply to post by scubagravy


Is that how Aussie's see their taxes are paid?

I do not see that as how American's see their taxes are paid.

Usually, it is the opposite, the more money you make, the more taxes are escaped.

Tax loopholes, accountants, and a tax-shelters.

Interesting theory nonetheless.

I guess that's why Halliburton moved to Dubai, they got tired of paying for the beers of all us "poor folks".
It also explains why formerly American corporations have moved away. Too bad they still get the lion's share of US government contracts.

reply to post by SpartanKingLeonidas


Hey Spartan, thanks for your reply, i see what your saying, but i believe it does state in the story

"The people who already pay the highest taxes will naturally get the
most benefit from a tax reduction.. "

Maybe we mean the same thing, just got home, im knackered!!

reply to post by scubagravy

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.

As true as that statement is, there's something about being a dumb old redneck that makes me want to wag my jaw anyway...


reply to post by SpartanKingLeonidas

Usually, it is the opposite, the more money you make, the more taxes are escaped.

Tax loopholes, accountants, and a tax-shelters.

In some respects, you are right. But the theory, regardless, is sound.

What we as a society need to do is not to attack and demonize the rich. We need not try to destroy them with higher taxes. What we need to do is examine those tax shelter and loopholes and eliminate the ones that seem unfair.

Another thing that you may not realize is how corporations get taxed.

The purpose of a corporation is not to make money for itself, but to make money for its shareholders. If a corporation makes, say $1,000,000,000 and has expenses to operate of $500,000,000, then it has made a profit of $500,000,000. Should it pay tax on that? Not if it doesn't keep it.

If that corporation has 500,000 shares outstanding, then it owes the owners of those shares a portion of its profits. That means that $1000 will be paid to each shareholder as their portion of the profits. Now, deduct that $500,000,000 paid to shareholders from the $500,000,000 profit and you have a net balance of --- $0! The corporation pays tax on $0. The corporation has $0 more now than it had last year. Each shareholder then pays taxes on the $1000 per share they received.

Tax is still paid. But the little old lady who owns 20 shares her late husband bought and has no other income gets $20,000 that year and pays taxes on that (which probably means she pays no taxes at all). The executive who owns 1000 shares gets $1,000,000 and pays taxes on that combined with his other income. And so on and so on.

The tax is still paid, but it is paid by individuals who own the corporation, not by the corporation itself. Anything else would be double taxation.

So the next time you hear how GE made billions of dollars in profit and paid no taxes, remember that GE has no face, no soul, no humanity. It is a economic machine, owned by thousands upon thousands of individuals. Sure, it paid no taxes, but the people who own it certainly did.

And in the process, you have appliances and light bulbs available at the local store for you to buy.

TheRedneck

reply to post by TheRedneck


In many respects you are right as well. Thing is the majority of shares in these corporations are owned by the very rich, who then escape paying taxes on the earnings.

These people do not pay a legitimate percentage, and I have first hand knowledge of what some of the wealthiest individuals in the us paid in taxes, but I cannot go into detail as nondisclosure agreements prevent me.

One thing I can say is it seems more like a negotiation for them.

reply to post by ISHAMAGI

No, no, you misunderstand me.... I'm not saying the owners escape the taxes; I am saying the owners do not escape taxation, because they pay the taxes on income rather than the corporations.

It's all a question of whose name is on the check - the person who receives the income or the company who made it for them.

If the wealthy are managing to use loopholes to evade taxation, then again, those loopholes need to be closed. That is better than simply decrying the whole theory.

TheRedneck

reply to post by Asktheanimals


That is correct.

Corporations can move overseas and get tax breaks.

And pay foreigners cheaper wages and screw American citizens.

Because rarely pass on their corporate savings this way to us.

I do not know about Australia's laws in that regard.

reply to post by scubagravy


Of course mate.

Those who have accountants or know the tax loopholes benefit the most.

The tax breaks should be best for those who are in the lowest tax brackets.

Anyone making less than $150,000 a year should not have to pay taxes period.

reply to post by TheRedneck


You're barking up the wrong tree, although I thank you, TheRedneck.

I have been a shareholder and corporation's go for maximizing their profits.

And they screw the shareholders with chump change.

The only way shareholders make any real money is to buy low and sell high.

I have been investing since 1998, both through Stock Brokers, and E*Trade.

The corporations should be taxed more and receive less profits and we should never have to pay taxes, if we make under $150,000 a year as citizens, period.

Yes, I agree loopholes sometimes suck, but only for those who are not in the know.

Congress writes those tax loopholes so they can utilize them and pay almost zero taxes.

Congress and Senate should not be allowed to vote for their pay raises, period.

It should be on the ballot because it is our tax money paying for it period.

In other words, if their performance sucks, if we pay them, we should be able to vote them zero pay raises across the board, because ultimately, we are the "shareholders" of America.

And 5 years later, nothing has changed, and i'm still broke

originally posted by: scubagravy
And 5 years later, nothing has changed, and i'm still broke

The only guarantee in life is death and taxes.