Saw this on the telegraph from one very clever poster
"Mr Clegg’s rise in tax allowances will disproportionately help the better
off"
off"
We frequently see this sort of statement from journalists made as a criticism of any proposed tax cut. Those making it are either being intellectually dishonest or are simply incapable of understanding how the tax system works. Tax cuts will always give bigger tax breaks to the better off for the simple reason that they pay more tax in the first place (and of course every tax rise will disproportionately hurt the better off but doesn't seem to get pointed out very often) What is important is that tax cuts help the poorer relatively more than they help the better off - the family who are struggling to make ends meet are going to appreciate an extra £10 a week far more than the family who has plenty of disposable income already will appreciate the extra £100 a week.
For a (slightly) humorous explanation of how the tax system works, try the following:
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:
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. '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 now cost just $80.
arrangement, until one day, the owner threw them a curve. '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 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.
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?'
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.
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.
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.
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 got' 'That's true!!'
shouted the seventh man. 'Why should he get $10 back when I got only
two? The wealthy get all the breaks!'
shouted the seventh man. 'Why should he get $10 back when I got only
two? 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!
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, ladies and gentlemen, 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 anymore. In fact, they
might start drinking overseas where the atmosphere is somewhat
friendlier.
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 anymore. In fact, they
might start drinking overseas where the atmosphere is somewhat
friendlier.
Credit to simoncarter for this.
