Carson Sasser » Income Tax

Tax System Illustrated by Beer Drinkers

Carson — Wed, 24 Sep 2008 15:09:18 +0000

I received an e-mail from my daughter that purports to explain how the US Income Tax system works in terms of ten men who gather nightly at their local bar to drink beer together. This has been around for a year or two but it’s worth a read if you haven’t seen it before. I found it on the web along with a rather clumsy and irrelevant attempt to refute the analogy. Truthorfiction.com has found that both David R. Kamerschen and T. Davies deny that they wrote the piece. Regardless of its origin, my opinion is that it is a relatively accurate but somewhat simplistic illustration of how our tax system works.

One of the reasons that many people don’t understand how the tax system works is that they don’t understand how percentages work. I kid you not. I see it quite often. One example is the willingness of diners to keep increasing the percentage of meal costs that they give to the server as a gratuity. We’ve seen it go from 10 to 15 to 20 percent. I’ve heard the argument that this is necessary due to inflation; that the servers need to get a raise along with everyone else. Huh? When a meal cost $10 and the expected gratuity was 10 percent the server got a dollar. When the meal went up to $15 the server got $1.50 at the old 10 percent rate. The server got a 50 percent increase in income just like the restaurant, and for the server it’s all profit. But what really happened is when the meal cost went up to $15 the expected gratuity went up to 15 percent and the server got $2.25, a 125 percent increase while the restaurant only got a 50 percent increase in gross receipts.

We’re a nation of suckers when it comes to income taxes and tipping.

Thomas Sowell on the "Complexity" of Economics

Carson — Thu, 15 May 2008 16:44:13 +0000

At the risk of appearing to be a shill for Sowell I’m recommending that you read another series of his columns:

Sowell makes it easy for people other than devious politicians with inflated egos to understand the effects of supply and demand versus the politicians’ actions on the “affordability” of those products that we need or want.

All three presidential contenders want to enact one or another price control on fuel but none of them wants to tap our greatest reserves of oil.

Barack Obama wants to levy an additional tax on the oil companies, which will increase the price of fuel. Apparently he sees it as punishment for their supposed greed. But guess who eventually gets punished. Clue: It’s not Obama or the oil companies.

Most of the liberal politicians today want to increase the income taxes of the “wealthy” taxpayers. Think about it. How do you actually tax the wealthy? The vast majority of them are in controlling positions relative to their income. Tax their businesses’ profits and they will pass it on to consumers of their products. Tax their salaries and they will raise them — and pass the cost on to consumers.

Consumers of products and services pay all the taxes regardless of their income. Since the non-wealthy consume vastly more products and services than the wealthy, the non-wealthy pay vastly more of the taxes. It doesn’t matter who files the return and sends a check to the IRS, we all pay too much in taxes in the end.

Have you heard someone boast that they don’t have to pay income taxes? Next time give them a lesson in trickle-down taxes and economics.

What is the Right Tax Rate?

Carson — Sun, 20 Jan 2008 23:50:39 +0000

Liberal politicians and pundits like to chuckle or snort when conservatives talk about supply-side economics. Proponents of supply-side economics roughly believe that reduced tax rates cause the economy to expand to the point that the government will collect as much or more tax revenue as it would have at the old higher rates. There have been studies that verify this and others that dispute it.

It’s clear that people disagree on what the right tax rate is, but do you suppose they can all agree that neither zero taxes nor a 100% tax rate is the right answer? Probably not, but I think most will. Even fiscal conservatives agree that some amount of government is necessary. We need to at least maintain order and defend the nation. I think sane liberals (that excludes Dennis Kucinich) would agree that a 100% tax rate would cause our economy to collapse. Not many people would continue to work for someone else when they are taking no pay home. They would have to self-produce some of the essentials of life and barter for the rest.

So, if a sane liberal — or anyone else — actually does believe that a 100% tax rate will destroy the economy and result in reduced government revenue, that person believes in supply-side economics. They believe that a tax rate lower than 100% will result in greater government revenue.

The real disagreement then is not on the theory of supply-side economics but on what rate is the right rate. A theoretician might argue that the right rate is the rate that maximizes government revenue. Conservatives think that rate is lower than the current rate; liberals think it is higher. Unfortunately we don’t have economists smart enough to give us the right answer, so we are left with experimentation.

Two of the last four presidents have significantly reduced tax rates with favorable results. If the next president is a Democrat (heaven forbid) and she raises taxes, at least we will get a data point in the other direction.