# Economics of Taxation

Moderator
8,655 981
This may spark some interest and debate concerning views on taxation. It is how David R. Kamerschen, Ph.D. who is a Professor of Economics views our taxation system:

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.

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, ladies and gentlemen, 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 amount of explanation is possible.

Last edited:

#### Atilla

##### Legendary member
19,855 3,111
I would like the wise Professor to explain how Mitt Romney made \$22m in 2010 and paid less than 14% in Taxes?

Mitt Romney Made \$42 Million, Paid Less Than 14 Percent in taxes - ABC News

If the wise men among you can also explain why middle classes pay highest tax 30% upwards, that would be enlightening.

In 2010, Romney made \$21.7 million, on which he gave nearly \$3 million in taxes at an effective tax rate of 13.9 percent. In 2011, the former governor earned a similar amount, and will pay more than \$3.2 million in taxes at a rate of 15.3 percent.

I'm also almost certain he claims large part of his living expenses as tax deductable expenditure as most businessmen do.

I don't mind paying more tax because I received a lot of help to get to where I am.

I'm sure some people didn't receive any help at all as they were no doubt born with a silver spoons shoved up and in to their orifices.

For those who understand, no explanation is needed.

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

That is such an obnoxious view. Speaks volumes about the professor.

Whilst at it - if the established professor can give us the benefit of his pov if Starbucks is justified in not paying any tax at all - as it gives employment to 2000+ young people on minimum wage whilst making huge profits?

As a student of economics I'm always shocked by this kind of tosh we are taught. Economists by assumptions can justify and explain away anything.

If people want to make billions and be happy ever after that's fine. What ever gets peoples rocks off.

Golden rules of taxation are;

1. people earning equal amounts of income, pay equal amounts of tax.
2. people earning unequal amounts of income, pay unequal amounts of tax.
- this second rule can be broken in to three parts;
a) regressive taxation
b) flat rate % taxation
c) aggressive taxation

As long as these two rules applied fairly to all participants in the system I'm happy. That includes regressive taxation too where one pays less the more one earns.

If some feel they are paying too much - because they are dick heads and hide their earnings in the Caymen Islands then forget shaming and naming - I'd fine the assets off their arses.

System is bent, corrupt, well and truly skewed! There is no level platform.

I have no Ph.D. - but I do have a brain.

Thanks

Moderator
8,655 981
Well the "ascribed" author probably didn't write it at all as this is just doing the rounds in the same way that all viral things of this nature do nowdays but I thought it would at least be of interest.

#### Jason Rogers

##### Senior member
2,772 93
This may spark some interest and debate concerning views on taxation. It is how David R. Kamerschen, Ph.D. who is a Professor of Economics views our taxation system:

Interesting, reminded me of this story I heard from Ronald Reagan:

#### Jason Rogers

##### Senior member
2,772 93
I would like the wise Professor to explain how Mitt Romney made \$22m in 2010 and paid less than 14% in Taxes?

Mitt Romney Made \$42 Million, Paid Less Than 14 Percent in taxes - ABC News

If the wise men among you can also explain why middle classes pay highest tax 30% upwards, that would be enlightening.

In 2010, Romney made \$21.7 million, on which he gave nearly \$3 million in taxes at an effective tax rate of 13.9 percent. In 2011, the former governor earned a similar amount, and will pay more than \$3.2 million in taxes at a rate of 15.3 percent.

I'm also almost certain he claims large part of his living expenses as tax deductable expenditure as most businessmen do.

I don't mind paying more tax because I received a lot of help to get to where I am.

I'm sure some people didn't receive any help at all as they were no doubt born with a silver spoons shoved up and in to their orifices.

For those who understand, no explanation is needed.

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

That is such an obnoxious view. Speaks volumes about the professor.

Whilst at it - if the established professor can give us the benefit of his pov if Starbucks is justified in not paying any tax at all - as it gives employment to 2000+ young people on minimum wage whilst making huge profits?

As a student of economics I'm always shocked by this kind of tosh we are taught. Economists by assumptions can justify and explain away anything.

If people want to make billions and be happy ever after that's fine. What ever gets peoples rocks off.

Golden rules of taxation are;

1. people earning equal amounts of income, pay equal amounts of tax.
2. people earning unequal amounts of income, pay unequal amounts of tax.
- this second rule can be broken in to three parts;
a) regressive taxation
b) flat rate % taxation
c) aggressive taxation

As long as these two rules applied fairly to all participants in the system I'm happy. That includes regressive taxation too where one pays less the more one earns.

If some feel they are paying too much - because they are dick heads and hide their earnings in the Caymen Islands then forget shaming and naming - I'd fine the assets off their arses.

System is bent, corrupt, well and truly skewed! There is no level platform.

I have no Ph.D. - but I do have a brain.

Thanks

Hi Atilla,

What are your thoughts on scrapping income tax altogether in favor of a pure comsumption tax? Consumption tax - Wikipedia, the free encyclopedia

Do you think that would be more fair and get rid of the loopholes you mentioned?

Jason

#### Atilla

##### Legendary member
19,855 3,111
Hi Atilla,

What are your thoughts on scrapping income tax altogether in favor of a pure comsumption tax? Consumption tax - Wikipedia, the free encyclopedia

Do you think that would be more fair and get rid of the loopholes you mentioned?

Jason

Yep no problems with VAT or PAYE.

You spend you pay.

Also - has flexibility in variable rates for baby, food stuff & books - essentials whilst applying VAT on non-essentials.

Can also VAT the pants off imports to correct BoP.

Effectively flat rate tax.

##### Legendary member
6,665 1,489
Most people (especially Socialists) tend to ignore the other side of the equation, which is Government spending. Socialists seem to think that the purpose of taxation is to make everyone equal or to make things fairer, when the main purpose of tax is to pay for Government. The bigger Government becomes the more inefficient and profligate it becomes and therefore higher taxes are required to fund it.

Most taxpayers, me included, hate paying taxes and avoid them as much as possible. Not because we are greedy, but because we see exactly how our tax money is being squandered by inept and manipulative politicians who use hard working taxpayer money to win votes by giving away more and more free stuff to those who live off the Government tit.

"The Power to Tax is the Power to Destroy" These are the words of Daniel Webster and Chief Justice John Marshall who lived in the days of the Founders.

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