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What would be a “fair” tax cut?

by Greg Krehbiel on 21 November 2017

Dave sent this to me.

Nine people meet for lunch. The bill for the lunch, including tip and taxes, is $100.

One person puts in $40
One person puts in $30
One person puts in $20
One person puts in $10
Five people put in $0

As they are getting ready to leave, their server comes over to the table and says, “I’m sorry, I accidentally overcharged you for the meal.” She lays 10 one dollar bills on the table.

How should the ten dollars be split between those who met for lunch?

Some possible scenarios.

  • A liberal democrat might say $2 to each of the 5 poorest people, they need it most.
  • An advocate of the working class might say give it all to the waitress, she is the only one working.
  • A black lives matter activist might say to give it to those most historically disadvantaged.
  • The rich guy who paid $40 might say give it all to me.
  • The accountant says to refund each person 10% of what they had put in.

Which one is “fair”?

I (GK) would go with the accountant’s option.

2017-11-21  »  Greg Krehbiel

Talkback x 8

  1. RR
    21 November 2017 @ 1:17 pm

    This isn’t a good analogy of the current economic and tax situation in the United States. The wealthy and upper-middle class have done very well economically since the 1970s. This is even more true for the super wealthy. I read recently that Jeff Bezos, Warren Buffett and Bill Gates together are as wealthy as the poorest half to the American population. The poor and middle class in this country have seen their wages stagnate over the last 30-40 years. All at a time when many good paying blue collar jobs have disappeared and the middle class has been hit with higher health care and education costs.

    You need an analogy that will take all of this into account. If I was totally in charge, I’d abolish the income tax for the poor, reduce it for the middle class and greatly raise taxes on the wealthy, especially capital gains taxes. It’s complete unfair and honestly downright immoral that a working man is taxed more on his labor (income tax and payroll tax) than someone who makes money off profits from the stock market.The wealthy need to pay more because they have by far benefited the most from our economy. Also, I don’t think giving the wealthy a tax cut will trickle down to the rest of the economy. Rather, giving a tax cut to the working poor and middle class will immediately benefit their lives and will stimulate the economy as they will spend much of what they get back.

  2. Greg Krehbiel Greg Krehbiel
    21 November 2017 @ 1:33 pm

    @RR, I don’t think it’s supposed to be an analogy for the current system so much as an illustration of how the word “fair” can be used in a bunch of different ways.

    I’m more and more sympathetic to the view that government has become nothing more than a mechanism for making the rich richer. Everything else is just distracting nonsense to keep us from noticing.

  3. Dave Krehbiel Dave Krehbiel
    21 November 2017 @ 1:33 pm

    @RR: I agree that some have an obscene amount of money. However, when You create your, “tax the rich” analogy and/or program, be sure to take into Accounted many of them will take their money and pack up and leave.

  4. Dave Krehbiel Dave Krehbiel
    21 November 2017 @ 1:57 pm

    @Greg: yes, that was the point I was trying to make.

    What is the most fair? What about giving each of the nine people a dollar, and leaving an extra dollar for the waitress? Since everyone is equal, does that make it fair?

  5. Greg Krehbiel Greg Krehbiel
    21 November 2017 @ 3:42 pm

    @Dave, I’m wondering if we should restructure our tax system so that we don’t care if they pack up and leave.

    Apparently it’s becoming more and more common for countries to impose their laws on people who aren’t their citizens. E.g., the U.S. goes after people in Europe who don’t follow our money laundering rules, and the EU is about to implement a regulation about website privacy (it’s called GDPR) that will affect U.S. companies.

    I have serious questions about whether this is a good thing, but … good or not, that’s the way it is.

    So following up on that, what if we structured our taxes so that a corporation that does business in the U.S. is taxed — no matter where they pack up and go to? They can set up their HQ on Mars for all we care, but if they want to do business in the U.S., they have to pay our taxes.

    I’m not a lawyer or a tax expert, but it seems to me that we could do that.

  6. William
    21 November 2017 @ 3:51 pm

    QUOTE:I’m more and more sympathetic to the view that government has become nothing more than a mechanism for making the rich richer. Everything else is just distracting nonsense to keep us from noticing.

    Lindsey Graham indicated that if Congress doesn’t pass their tax cut plan their wealthy donors are going to close their purses to the Republicans. I suspect this has lit the proverbial fire under their “donkeys” and they now have a burning platform for “fair” tax reform.

    So, let me see if I understand this. The current Senate proposal is to cut the corporate tax rate from 35% to 20% and fund some of that by taking money from healthcare (significantly impacting those who may not be able to afford it without assistance). As well, to increase the national debt by some insane amount. Also, to make corporate tax reductions permanent while the tax cuts expire for the non-wealthy in approximately in 5 years. Oh, and those who currently live in high tax states might even see a more immediate tax increase. All the while this is billed as primarily benefiting the middle class. Well, I guess that’s a another way to make things “fair”.

  7. RR
    21 November 2017 @ 4:37 pm

    Greg,

    I agree that the federal government is often little more than a mechanism for making the rich richer. Think of the housing crisis and all of the multi-billion dollar bank bailouts that followed. The stock market then boomed, which disproportionately benefited the rich while the middle class and poor continued to suffer from the effects of the Recession. Oh, and the Obama administration, to its great shame, did not prosecute any white collar criminals, despite all kinds of shenanigans that took place in the real estate, banking and financial sector in the lead up to the 2008 crash. Oh, and many of the banks have continued shady business even in very recent years. Wachovia’s scam of opening accounts without the approval of customers and then charging them overdraft fees comes to mind.

    In addition to paying more taxes, there are some rich people in the banking and financial sector who are criminals. If I had my way, we’d treat white collar criminals the way we treat those who engage in armed robbery. The white collar criminals are far more dangerous.

    I realize that there are plenty of rich people who aren’t criminals and certainly don’t deserve prosecution. However, in general, I have a hard time feeling sorry for wealthy people paying higher taxes. Not that it will happen as the Republicans are their lapdogs. Oh, and Dave I don’t believe the rich would leave if their taxes went up a bit. Hollywood liberals always say that they will move to Canada if a Republican is elected (first it was George W. Bush, more recently it was Trump). But they never follow through on their threats. Something tells me the same would be true for many wealthy people. After all, if you are a multi-millionaire or multi-millionaire, paying a bit more in taxes isn’t exactly going to change your lifestyle.

  8. William
    21 November 2017 @ 5:00 pm

    QUOTE: Also, I don’t think giving the wealthy a tax cut will trickle down to the rest of the economy.

    Interesting enough, CEOs/executives were asked about this at a recent forum where Gary Cohn was a panelist. It appears very many didn’t commit to increasing wages and creating new jobs. I’m not surprised…the responsibility of an executive team is to generate value for shareholders.

    So again, help me understand how this new tax plan is a big benefit for the middle class and is fair???

    http://www.businessinsider.com/trump-gop-tax-plan-gary-cohn-bill-2017-11

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