BEER AND TAXES

B

Since we are already well into the 2020 presidential campaign season, you will hear the Democrat/Liberal/Progressive/Socialist candidates describe President Trumps Tax Reform Law as, “a tax cut for the rich.”  Over and over and over.

A very simple and ingenious cartoon was produced by Johnston Grocke, Accountants and Financial Planners. https://www.youtube.com/watch?v=BomQxCG5VG4

It is worth your time to watch the cartoon.  My intent is to describe it to you in print so that you can better absorb all the numbers and think about how grossly wrong “a tax cut for the rich” actually is.

The cartoon goes like this: Once a week 10 gentlemen assemble at a bar to drink beer.  The bar tender sets out $100 worth of beer.  One way of divvying up the bill would be for each to pay $10.  But the low-income guys couldn’t afford $10 a week. So, they decided to use the existing 2016 Tax Code to determine shares. In this cartoon the bar tab ($100) is synonymous with total federal income tax receipts. 

The group of ten men represent the income spectrum from very poor to wealthy; person #1 is the poorest, and each succeeding beer drinker, #2 through #10 makes more money than the person preceding him.

Scenario # 1, 2016, pre-tax reform: At the end of the evening they paid in accordance with where their income fell in the 2016 Federal Tax Code tables. 

Person:

# 1 thru 4 paid $0.

#5 paid $1

#6 paid $3

#7 paid $7

#8 paid $12

#9 paid $18

#10 paid $59

  Total $100

My conclusions:  those who cannot afford to pay the bar tab/taxes, don’t. The more income you have the more bar tab/taxes you pay. Those with the largest income pay the lion’s share of the bar tab/US federal taxes. 

Everyone was happy with the payment system until…….

Scenario # 2, tax year 2018, Trump tax reform:  The bar keeper announced that he would only charge them $80 instead of $100.

#1 thru 4 stay the same and drink for free

But how should # 5 thru 10 divide up the $20 windfall?  Dividing $20 by the 6 remaining men would equal $3.33 less each week than what they paid in Scenario #1.  That would be the FAIR SHARE methodology.

But, if they reduced each by $3.33, #5 and #6 would actually GET PAID to drink beer.  So, “fair share” is not really fair.

The bar tender suggested they continue with the same concept as in Scenario #1;  except pay in accordance with the new Trump tax.

Scenario #2 compared to Scenario #1:

#1 thru #4 still paid $0

#5 joins #1-4 and now also paid $0, a saving of 100% (over the previous payment of $1)

#6 paid $2 instead of $3, a saving of 33%

#7 paid $5 instead of $7, a saving of 28%

#8 paid $9 instead of $12, a saving of 25%

#9 paid $14 instead of $18, a saving of 22%

#10 paid $49 instead of $59, a saving of 16%

Total $80

KEY POINT #1:  WITH THE NEW TAX PLAN/BAR TAB EVERERYONE PAID ZERO OR LESS TAX. But, when #1 thru #9 departed the bar, they began to compare their “savings” ($80-tab vs $100-tab).   #5 says, “Why did I only get $1 saving while #10 got $10? “ #7 says, “I only got a $2 saving and he got $10, the wealthy get all the breaks.”  #1 thru #4 yelled in unison, “We didn’t get anything at all; the new tax system exploits the poor.

KEY POINT #2: The wealthy will always “SAVE” MORE DOLLARS because they put exponentially MORE DOLLARS IN. But all the lower tax brackets get a GREATERE PERCENTAGE SAVED. 

KEY POINT #3: WITH THE LOWER TAX/BAR TAB THE RICH FOLKS “SHARE” ACTUALLY INCREASED FROM 59% TO 61%. 

KEY POINT #4: “PRESIDENT TRUMP’S TAX LAW IS JUST A TAX BREAK FOR THE WEALTHY” IS ABSOLUTELY A FALSE STATEMENT.

Scenario #3: The next week when they assembled to drink beer, #10 didn’t show up. When it came time to pay the tab, they had $30 (#1 thru #5 were free, #6 paid $2, #7 paid $5, #8 paid $9, #9 paid $14) far less than half what they needed. 

KEY POINT #5: WAKE UP AMERICA, it is possible to tax the rich to the point they actually take their money and go away.  Yes, it can happen.  Study the tax/economic situation in France, many rich people are gone.  They found a place to live where they are not disincentivized. 

KEY POINT #6: THERE IS A FALSE NARRATIVE IN THE DEMOCRAT/PROGRESSIVE/LIBERAL/SOCIALIST AGENDA. DON’T BELIEVE IT BECAUSE IT IS NOT TRUE. 

Marv Covault