Dems Increase Taxes

Terrific. That's just what we need during tough economic times, right? Well, your Democrat-led House of Representatives delivered. The newly passed legislation would raise taxes on some of the highest income earners in the country while extending the 2003 tax cuts Bush implemented on lower- and middle-income earners. That may sound fine to you (if you're not in that top bracket), but before you triumph in sticking it to 'the rich', consider this example of how our tax system works:

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. He said, "Since you are all such good customers, I'm going to reduce the cost of your daily beer by $20. Drinks for the ten 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 realized 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 roughly the same amount, and he proceeded to work out the amounts each should pay! And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before, and the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20," 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 dollar, too. It's unfair that he got ten times more than I!"

"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. The 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 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 college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up any more. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

Pretty simple, really, don't you think? Given the inherently unfair nature of our tax system, those highest income earners are critical to the survival of our economy. Ironically, if we had some kind of a fair or flat tax (where everyone paid the same percentage of whatever they earned), all of this would go away.

But we can arrive at this solution using plain ol' common sense. What's the single biggest key for economic success? Jobs. Without a job, it's hard to spend money, but with a job, the money flows and everyone wins. Now, how many poor people do you know that open businesses, hire employees, and create jobs? (Ignore for the moment all of the formerly prosperous small business owners who are now poor because of two years of Obama/Democrat policies...just think hypothetically.) It just doesn't happen.

You can also look at this from the consumer side of things. Which costs more, a 50-foot yacht or a wooden toy boat? Obviously, the yacht. Does it take more jobs to create one yacht or one toy boat? Obviously, the yacht. If 'the rich' have less disposable income, they spend less, thus removing the demand for high end things like yachts, luxury cars, spiffy electronics, and so on.

Furthermore, when these jobs aren't created (or are lost because of declining demand for products and services), which jobs are the ones that are lost first? The lower-income jobs, right? So, when 'the rich' get hammered by higher taxes, it ends up hurting the least wealthy people.

This really is simple stuff. And the Democrats in the lame duck session of Congress have just officially voted to hammer 'the rich', thus causing an inevitable cascade effect that will hurt the lower- and middle-class.

So what was at stake here? Sam Graves, the Rep for MO's 6th District, said this in his most recent newsletter:

On December 31st, the current tax rates will revert to the old tax rates of 2001. For comparisons sake, here’s what they currently are compared to what they will be:

10% will become 15%

25% will become 28%

28% will become 31%

33% will become 36%

35% will become 39.6%

Along with these increases, the marriage penalty would return, as would the death tax – jumping from 0% this year to 55% next year. The child credit would be cut in half from $1,000 to $500. These are real numbers with real costs. The cumulative cost to taxpayers is approximately $3.8 trillion (that’s with a “T”). An average American family of four would see roughly $2,200 in tax credits disappear under these new conditions.

I think this was sent out before the vote took place, and I haven't yet seen which of these exact brackets were preserved and which were increased, but I would imagine it was the top two.

The Senate hasn't voted on it yet, and it seems unlikely to pass there, but one never knows. Sounds like that vote may happen on Saturday. Or it may not take place at all...if that happens, all of the tax cuts will expire, raising taxes on everyone.

In addition to what we've already discussed, some extra analysis of possible consequences include another stock market crash at the end of the year. So much for the 'recovery', huh? Not that it was much of one, anyway.

Oh, and in related news, the unemployment rate jumped up to 9.8% again. Unexpectedly, of course.

Thank you, Obamanomics.