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A Layman's analogy of Tax

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    A Layman's analogy of Tax

    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 pound 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 pound 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, members of this forum, 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

    Re-posted with thanks to Pete Ross and David R. Kamerschen, Ph.D.

    #2
    Did any of them cruise?
    Regards
    Garfield

    Comment


      #3
      Brilliant Richard...........and I wait with baited breath for JC's response...........Wilba
      Wilba

      Comment


        #4
        Originally posted by Wilba View Post
        Brilliant Richard...........and I wait with baited breath for JC's response...........Wilba
        Well HMV has stepped in above you.

        On second thoughts he's either fallen off the world or is probably working out some weird excuse for the Mike Philpott thread.

        Comment


          #5
          Originally posted by Solent Richard, Lee on the Solent View Post
          Well HMV has stepped in above you.

          On second thoughts he's either fallen off the world or is probably working out some weird excuse for the Mike Philpott thread.
          As Jonesy would say in Dad's Army

          "They don't like it up 'em Mr Mainwaring"

          Dad's Army - Opening Titles - YouTube

          Regards
          Garfield

          P.S.
          The OP is as old as the hills.
          Surprised you haven't seen it before.
          Last edited by Garfield, Waterlooville; 5th April 2013, 12:21 PM.

          Comment


            #6
            This is really pretty good! I like it
            Duncan S

            See my blog!

            Comment


              #7
              Excellent analogy Richard.

              But what the vast majority of people don't seem to agree with is that taxing the rich at 45% or even 40% is still unfair.

              People say the rich should pay more, but with taxation as a percentage of income, the rich will always pay more. Someone with taxable income of £30K a year pays £6K in income tax, so someone with £1M a year should pay £200K, not £450K. I know I'm in a tiny minority, but I believe progressive taxation, where the government takes a higher percentage of your money the more you earn, is unfair and immoral.

              I agree that there needs to be phasing in, so the poorest are not hit with high tax rates (and we need to avoid taking taxes with one hand and paying them back in benefits with the other), but once you get above average income you should be paying the same percentage regardless of what your income is. The higher your income, the more you would continue to pay - in real cash terms.

              Plus of course the wealthiest people spend more money, so are paying more VAT.

              The current system of the wealthiest 1% of people paying 30% of all income tax receipts is ridiculous.
              Last edited by Nick_C, Worthing; 5th April 2013, 01:10 PM.

              Comment


                #8
                Originally posted by Solent Richard, Lee on the Solent View Post
                The nine men surrounded the tenth and beat him up.
                Did he receive medical care? If so, did he go private or use the NHS?

                Did the first 7 get sent down, but the 8th get off because he could afford a good lawyer and the 9th didn't stand trial because he had connections?
                Last edited by ROSEBASKETS, Yorkshire; 5th April 2013, 01:16 PM.

                Comment


                  #9
                  Hi Nick.
                  Apology for C&P,,,but as the OP always seems to find,its sometimes easier.

                  Try this!!!

                  "The fairness of 50p, by Chris Dillow: Over in the twitterverse, a Very British Dude has asked whether I think it reasonable to confiscate by force more than half of someone’s marginal earnings. ... I’d suggest three possible answers here, which vary in force depending upon the precise type of the rich:
                  1. A high tax is a dividend, paid to the state in return for its investment in the things that made you rich.
                  Even if the state did not educate you, the chances are that it educated your colleagues and customers, whose education benefits you. The state has provided the domestic peace that has enabled the economy to grow and thus give you the chance to get rich; very few of the UK’s top earners would be so rich had they been born in sub-Saharan Africa. It has provided laws - such as patents and copyright protection - that allow artists and entrepreneurs to profit from their efforts and talent. And in various ways the state helps to sustain capitalism and hence profits and high earnings.
                  Why shouldn’t it demand payment for such benefits?
                  2. The state’s force is a form of countervailing power. Some (many?) of the rich owe their fortune to the fact that they are powerful. Most egregiously, this power consists of an ability to extract cash from the state. When the government taxes bankers or the bosses of BAe, Serco or Capita, it is merely getting its money back.
                  In other cases, high earnings come from a power to extract rents from either shareholders or workers... In these cases, state power corrects for private power.
                  3. Inequality is a form of market failing. Imagine we were all behind a veil of ignorance, not knowing what talents we’d be born with. Isn’t it plausible that, behind such a veil, people would agree to enter into insurance contracts such that if they got lucky or talented they would pay out to the unlucky and untalented? People would, surely, agree to pay out a proportion of the £1m-plus a year they would earn as Premiership footballers in order to soften the misery of being born with no marketable skills.
                  You can therefore regard redistributive taxation as, in effect, the sort of insurance payments that would be made, if such contracts were feasible. In this sense, the tax merely fills in for the missing market.
                  These arguments do not get us to a precise tax rate. But they do suggest a case for some degree of progressivity in the taxes.
                  And let’s be clear. A 50p tax is not massively progressive. Overall revenues are equal to just over 37% of GDP. Under a purely proportionate tax system, then, we would all pay 37% of our income. ... Expecting a tiny proportion to pay 50% (yes, for some the marginal rate is 62%, but the average rate is lower than this) strikes me as not wholly unreasonable."

                  My thanks to Chris Dillow,,Economist.

                  JC
                  C P Scott,,,,,"Comment is Free,,but Facts are Sacred"
                  "You are entitled to your opinion. But you are not entitled to your own facts.

                  Comment


                    #10
                    Originally posted by Wilba View Post
                    Brilliant Richard...........and I wait with baited breath for JC's response...........Wilba
                    Hi Wilba.
                    You can breathe easy now,,,,Jobs a good un!!!!
                    Did it just for you.
                    JC
                    C P Scott,,,,,"Comment is Free,,but Facts are Sacred"
                    "You are entitled to your opinion. But you are not entitled to your own facts.

                    Comment


                      #11
                      I hadn't seen that before Richard, very clever.

                      IMO I think the personal allowance should be risen even higher, so low earners pay no tax, or national insurance until they earn at least £20,000 and then every one should pay the same tax rate.

                      I think it's ridiculous to pay tax on low earnings and then have to claim it back in some sort of benefit because you don't have enough money to live on.

                      If every-one had a decent wage to start with they wouldn't mind paying a bit extra in tax.......................................Carol

                      Comment


                        #12
                        Originally posted by jc, liverpool View Post
                        Hi Wilba.
                        You can breathe easy now,,,,Jobs a good un!!!!
                        Did it just for you.
                        JC
                        I knew you wouldn't let me down...........Wilba
                        Wilba

                        Comment


                          #13
                          On second thoughts he's either fallen off the world or is probably working out some weird excuse for the Mike Philpott thread.
                          Hi all.
                          Is this aimed at me?,,,,,,"working out some weird excuse for the Mike Philpot thread"

                          The member is 24hrs too late,,,,,obviously he doesn't read his own threads....."Kinda sums up welfare".

                          I started the debate re the Daily(hate)Mail disgusting headline 'Vile product of Welfare',,,,yesterday @10.37.
                          Post numbers 46,48,49,53,61,,,and a very civilised debate it was.

                          JC,,,,,not Paolo di Canio.
                          C P Scott,,,,,"Comment is Free,,but Facts are Sacred"
                          "You are entitled to your opinion. But you are not entitled to your own facts.

                          Comment


                            #14
                            Hi JC, It's quite revealing that the OP..SR is happy to present a scenario based almost entirely around his cynical attitude to poor people, who he obviously regards as substandard human beings,given only to thinking in terms of Envy. Perhaps he will respond by saying that some of his best friends are poor people....maybe those who share the stands at Chelsea or Southampton...or perhaps the poor chap who digs his allotment.Mmmmm. Subsidised Stan.

                            Comment


                              #15
                              An amusing anecdote(albeit rather old) but a bit like most stories told about/in a pub,it can prove what it wants to just by the way you word it,a bit Politics/Miller Lite.The Tories have been talkingabout the Brain Drain and Celebrities going elsewhere for as long as I can remember.It's an urban myth.I think some of them could do with taking Elton John's stance.He is out of the country enough to avoid tax but doesn't, recognising that the UK (both his education and things like the welfare state) contributed to his success.
                              The reality of all crafty tax avoiders is that they can more than afford to pay, it's not a night out in the pub,it's real life.It's not a question of punishing success, it's a question of looking at society as a whole.To be honest,the ones that have bleated most about in the past,I wouldn't miss anyway.Very few have actually carried out their threat, which suggests to me that despite all its problems the Uk isn't really that bad a place to live.
                              To use the same analogy,if you gave bankers £100 to spend on a night out, they would in the bad old days have found some way to spend 3 times that(but it wouldn't be their own money),if the banks had had a decent "bouncer" they wouldn't have got away with it.

                              Comment


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