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[Nickbat]

Shamelessly lifted from somewhere else. 

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, boys and girls, 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.

David R. Kamerschen, Ph.D.
Professor of Economics.

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

 

[Entwood]

Excellent post ... can you send it to those Libour prats who think they know how to run the economy ??

[Kevin Wood]

Excellent post ... can you send it to those Libour prats who think they know how to ruin the economy ??

 

[albitz]

Brilliant. .............A perfect explanation why the politics of envy is the road to ruin.

[cleggy]

Excellent post ... can you send it to those Libour prats who think they know how to ruin the economy ??

 

 

[Bixy1]

Nicely put, but I don't drink beer . . .

[Field Marshal Dr. Opti]

Entertaining, Nick.......but  the wealthy have never paid much tax. Smart arse accountants see to that.

 

[Field Marshal Dr. Opti]

Shamelessly lifted from somewhere else. 

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, boys and girls, 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.

David R. Kamerschen, Ph.D.
Professor of Economics.

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

 

Let them. They take far more than they contribute.

[aaronjb]

http://www.thisismoney.co.uk/money/news/article-2107031/UK-Budget-2012-Top-1-earners-contribute-income-tax.html

[Webby the Bear]

love the post nick 

[Field Marshal Dr. Opti]

http://www.thisismoney.co.uk/money/news/article-2107031/UK-Budget-2012-Top-1-earners-contribute-income-tax.html

Interesting Aaron, but far too simplistic.

The first comment from Alexander in Scotland sums it up better.

Put simply, the wealthy do not pay their fair share of tax.

[aaronjb]

What do you class as wealthy? I suspect a lot of people consider anyone with a pre-tax income over £50k 'wealthy'..

[Field Marshal Dr. Opti]

What do you class as wealthy? I suspect a lot of people consider anyone with a pre-tax income over £50k 'wealthy'..

That's merely comfortably off . I imagine that quite a few of us here at OOF earn significantly more than that.

By wealthy, I mean individuals and corporations who are so well off they don't  play by the same rules as "us plebeians"

[dbug]

@Nickbat - sums it up nicely mate

[dbdb]

But tax is really for the little people:

From The Sunday Times
September 16, 2007
Treasury reveals tax burden is heaviest on poor
Holly Watt

BRITAIN’S richest people are paying 4p in the pound less in tax than any other section of the population, according to new figures released by the Treasury.

The data show the top 1% of households hand over 31% of their income when all direct and indirect taxes are accounted for, compared with an average of 35% for everyone else.

Much of the gap has opened up because, while the rich pay a higher rate of income tax, they pay a smaller proportion of their income in indirect levies such as television licences and Vat on goods and services.

The Treasury analysis, which covers figures for 2005-6, the latest available, has been seized on by critics who believe the figures show Labour’s tax regime has excessively favoured the rich.

Vince Cable, the Liberal Democrat shadow chancellor, to whom the figures were released, said: “People at the very top pay a smaller percentage than people at the bottom. Despite the claims that the tax system is progressive, it seems that people right at the top are paying less.”

Cable is concerned that the tax burden has increased most on the lowest earners.

It is unclear whether the figures include the tax paid by people with nondomiciled status. If it does not, it may understate the disparity between the rich and the rest.

Gordon Brown has shied away from new taxes on the rich to avoid undermining the City and scaring off investors.

During the summer there was public controversy about the low rates of tax enjoyed by private equity tycoons, some of whom can pay as little as 10% on their earnings.

The controversy was stoked in June when Nicholas Ferguson, chairman of SVG Capital, admitted in an interview that he felt uncomfortable paying lower taxes than his cleaner.

“Any commonsense person would say that a highly paid private equity executive paying less tax than a cleaning lady or other low-paid workers . . . can’t be right,” he said.

Although the Labour government initially claimed it would promote a progressive tax system, whereby the highest paid contribute more in taxes, the figures undermine the claim.

For the lowest 10% of earners, the average annual income per household is £8,366, of which 44.2% is paid as tax.

At the other end of the spectrum, the top 10% of households receive an average £88,334 and pay 35% in tax. The highest-earning 1% have an income of more than £92,300. Households on the median income of £24,700 pay 35.3% in tax.

Mike Warburton, senior tax partner at Grant Thornton, the accountancy firm, said: “Up to certain income levels, whatever income people get they spend and get hit with taxes. But at the top end people start putting money into their savings and some of the big items of expenditure for these people - notably private school fees - do not attract Vat.”

The tax status of nondomiciled residents, who are taxed only on the investment income they remit to the UK, has also been questioned.

A number of donors and lenders to the Labour party have benefited from this status. They include Lakshmi Mittal, Britain’s richest man, Lord Paul, the industrialist, Sir Gulam Noon, the curry tycoon, and Sir Christopher Ondaatje, the publisher.

The provisions have been officially “under review” by the Treasury since 2002, but no conclusions have been published. Treasury documents published under the Freedom of Information Act showed that there were 77,000 people in Britain benefiting from nondomiciled status in 2002. The number is now put at nearly 200,000.