Posted by: Van Colombo | January 14, 2010

Lean “Federal Income Tax” in 5 minutes

From what I’ve read today,  A Professor of Economics from the University of Georgia created this to help explain the Income Tax and how cutting taxes works.

It seemed that 10 men decided to have a business lunch once a week. They always met in the same restaurant and the bill was always, $100.00, for all 10 men. If each man was responsible for his share of the bill that would be, $10.00, each. The men decided to divide the bill based upon their ability to pay. Using an agreed upon formula the following payment arraignment was worked out based upon income.

Men 1-4 who made the least amount of money paid nothing.
Man 5 paid $ 1.00
Man 6 paid $ 3.00
Man 7 paid $ 7.00
Man 8 paid $12.00
Man 9 paid $18.00
Man 10 paid $59.00

After several weeks the owner of the restaurant told the men that because they were such good customers he was reducing the bill by $20.00. Their dilemma was how to divide up the, $20.00. If each person got the same amount then the first 4 men would be getting money back but they never paid anything for the dinners. After much discussion and no resolve the owner offered the following suggestion which they all agreed to.

Original Payment New Payment $ Amount Saved % Saved

Men 1-4 paid $ 0.00 $ 0.00 $0.00 0%
Man 5 paid $ 1.00 $ 0.00 $1.00 100%
Man 6 paid $ 3.00 $ 2.00 $1.00 33%
Man 7 paid $ 7.00 $ 5.00 $2.00 28%
Man 8 paid $12.00 $ 9.00 $3.00 25%
Man 9 paid $18.00 $14.00 $4.00 22%
Man 10 paid $59.00 $50.00 $9.00 15%

Once out side the men began to argue about the settlement. Man 5 said he only got, $1.00, while Man 10 received, $9.00. Men 1-4 were upset because the received nothing. They said that the cut only benefited the rich and the poor got nothing. They were upset so they beat up Man 10 and left him. The next week they met for lunch as usual except man 10 did not show up. When the new bill arrived the men discovered that between them they did not have enough money to pay even half of the bill.

In this story we see a simplified version of the Federal Income Tax. According to an article in the “New York Times” 80% of the taxes are paid by 20% of the people highest income people. Any time you have a tax cut the people who pay taxes are going to get the money. The next time you hear of a tax cut and the media tells you that the wealthy are getting all the money, remember they are paying the taxes


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