## Wednesday, November 26, 2008

### We're already the most "progressive" country

This chart comes from RealClearMarkets and is too good to not pass around. The yellow bars represent the share of total taxes paid by the top 10% of households, while the magenta bars represent the share of total taxes paid by those same households. The U.S. ranks as the most progressive country, with the top 10% paying fully 45% of all income taxes—"the highest tax-to-income ratio of any country."

The Lab-Rat said...

Reminded me of this classic...

US Tax System Explained in Beer

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 is 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′. The drinks for the ten 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 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 drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same proportional amount (rounded off), 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 drink 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 is right’, exclaimed the fifth man. ‘I only saved a dollar too… It is unfair that he got ten times more than I!’.

‘That is true!’ shouted the seventh man. ‘Why should he get \$10 back when I got only two? 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 (the richest) didn’t show up for drinks, so the nine sat down and had 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 the bill!

And that, ladies and gentlemen, 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 anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

Scott Grannis said...

That is truly a classic.

Mark Abell said...

While the wealthiest must pay the greatest share of taxes, much of that wealth is often gained in unethical ways (not always, some wealthy people legitimately earn their wealth(. For instance, an executive who exports jobs from a city in the Midwest to Mexico, receives a bonus of \$10 Million, will have to pay a much higher tax rate than other income levels. However, this action effectively removes the possibility for economic mobility for lower income groups. Walmart does not pay livable wages. Are you unaware of this? Yet, without that \$7 an hour Walmart worker, the man on top could not make \$30 million. We are all connected. You'd be wise to realize that...

Mark Abell said...

Nations such as Denmark, Germany and Sweden have greater economic mobility than the U.S.?[1]

[1]http://www.myglobalcareer.com/archives/2008/11/19/upward-mobility-is-so-1970s/