Schadenfreude Wrote:I'm going to oversimplify this post in persuit of a point and mathematical simplicity.
In the nation of Fredonia, we have 16 citizens.
Persons A through E earn $10,000 per year. Persons F through O earn $100,000 per year. Person P earns $1 million per year.
In Freedonia's progressive income tax system, Persons A through E pay no income tax at all. * They don't earn enough.
Persons F through O might pay 20 percent of their income toward the income tax. That's $20,000 each.
Person K pays 39 percent toward the income tax.** That's $390,000.
So Fredonia is able to raise $590,000 annually to operate its society. Part of that includes helping out Persons A through E. They don't have much dough, and life is hard for them. Their thatch rooves are collapsing. Two just don't earn enough money to feed their kids. A couple are old and sickly and can't work. One is the village idiot.
Some of that tax money money also goes to post a citizen as a guard at the border. Fredonia wants to keep safe from its neighbors.
Well, one day, Person P gets some mail from the Cato Institute or something like that, and starts bugging his fellow citizens to junk the progressive income tax. "It punishes success," he argues.
So the people of Fredonia sit down and try to figure out what the new sales tax rate ought to be. This is a big deal. The whole country comes out to discuss it.
"We know we need $590,000 to keep this country going," argues Person D.
Person E agrees. So they set the national sales tax rate at 28.8 percent.
But, soon, almost everyone on the island is getting cranky.
Persons A through E, who formerly paid nothing, now pay $2,800 each. Persons C and D are cutting pills in half and eating cat food. The kids of persons A and B are getting the rickets.
So, Fredonians have another national meeting. They agree that Persons A through E shouldn't have to pay anything. They bump up the sales tax rate to 29.5 percent.
But now, Persons F through O, who were already pissed, are beside themselves. They already got socked with an $8,800 tax increase when the sales tax was imposed. Now they are going to face another $700 tax increase.
"This is horseshit," Person J says. "I'm sick of government pissing away my money."
So they knock on the door of Person P. Once they get the work crews to take a break -- he's been hard at "work" expanding his mansion with the $100,000 or so he saved through national tax reform -- they explain the problem.
Person P agrees: "You are right. This isn't fair. Success shouldn't be punished."
So, Fredonians set another sales tax rate: 20 percent. Most Fredonians are relieved. They are still paying taxes, but at least they are back to the bill they are used to.
Of course, someone has to pay -- and in this case, it's the poor Fredonians. The Fredonian national government is only raising $400,000 a year. They still need a guard at the border, after all.
"You're just going to have to tighten your belts," Person H tells Persons A through E. "Get a job, or something. Don't bother us with your problems."
The poor Fredonians go looking for Person P, but no one can find him. That first $100,000 tax cut paid for the expansion of his mansion. Rumor is he used the $80,000 he saved in the second tax cut to buy a yacht. But some say he bought a summer home, instead.
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* If they lived in America, they would pay about 7 percent of their income toward FICA. But let's leave that aside.
** I've exaggerated the bill to keep my math simple. The top marginal rate under President Clinton was 39 percent, but it only applied to income over $250,000. Also, we need to keep in mind that Person E will not pay a nickel more toward FICA than persons C and D.
Nice try here...but let's go to a more realistic scenario...
Let's keep the 16 citizens in Fredonia.
Persons A through E make $10,000 a year. Persons A,B,and C are on a government welfare program, something you "oops'', forgot to mention. They sit on their butt all day and don't work at all. D is an elderly couple on retirement. E is the village drunk.
Persons F through O earn $100,000 a year. Person P earns $1 million a year.
Assume your income tax, giving Fredonia the $590k and all that crap.
The income tax is replaced by a national sales tax...at 25%. Food is exempt from taxation.
Persons A through C suddenly realize... "damn, I can't sit on my ****** all day and let the government pay for all my needs like the Shad party said I could. I actually have to take responsibility for my actions". They realize that suddenly, they need to earn more, so they pick up new jobs. At $6.50./hr, they are able to make $13,520 a year. The $3,520 extra is more than enough to cover the sales tax on goods needed, because poor people do not spend much on luxuries, with something left over. This gives them extra money in the pocket, and a new sense of pride in the fact they are now benefitting society. They spend roughly $10,000 of their money. Unlike their welfare years though, the $2,500 in taxes still leaves them with $1,020 they didn't have before when they spent their whole welfare check.
D and E are frugal and tight, spending only $7800 of their check. That's $1,950 in taxes. But more to come on those two.
F,G,H, and I are families making $100k, but are wanting to save up. They're trying to buy bigger houses and bigger yards. H wants a new swimming pool. I wants a new Mercedes. All of them decide, like many middle-class families in America today, to save their money and spend frugally to get the $$ they need for what they want later. They save $25,000 and only spend $75,000 of their money. This is $18,750 they give in taxes roughly. J,K,L,M,N, and O save only $15000 of their savings, and spend $85,000, giving $21,250 in taxes to Fredonia.
P says hell, because prices are cheaper, and the government won't tax my income, I'll be glad to spend more and buy more. P buys a new Jaguar. He buys more watches and more luxury items then he did before. He used to only spend about $500,000 of his annual salary, now he spends $800,000. He gives $200,000 in taxes to Fredonia.
So now Fredonia has a government running at $413,490. It's less then the income tax, so the people get together and decide what they need to do. Easily helping out D and E is one item. Keeping the guard at post is another. Of course, $30,000 is saved off welfare because of the success of A,B, and C. The solution becomes simple.
"Say, why do we need a program for this orchard?" says Person G. "It's on Person P's soil..no one else uses it. Isn't that pork?"
"That's right" says Person I, "and look at all these other projects on the budget. Why does Fredonia need to pay $60,000 to research more on the Clinton study "Why do prisoners not like prison?" Don't we know why already? These shouldn't be paid by the populace. We don't need them."
The pork projects are hence cut. Therefore, Fredonia now has a more efficient government; they've cut 60% off their welfare, only needing to help D and E. Everyone has more money in their banks, and unemployment, which was at 26.7% at the 'progressive' income tax (Elderly who do not wish to work do not count in the unemployment figures) is now at 6.7% aka the village drunk.
And Shad's economic policy, again, is wrong. It's about personal responsibility. The far left doesn't think people need it. I say we do.
WPS