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marshall_42

A Lesson In Tax

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This explains taxes nicely and also why the rich move to the IoM. If somebody was clever they could rejig this for the IoM taxcap scenario ;)

 

Bar Stool Economics

 

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.

More...

 

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.

 

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 bar, the men began to compare their savings.

 

“I only got a Euro 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 Euro, too. It’s unfair that he got ten times more than I did!”

 

“That’s true!” 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!

 

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 20% 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.

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This explains taxes nicely and also why the rich move to the IoM. If somebody was clever they could rejig this for the IoM taxcap scenario ;)

 

Bar Stool Economics

 

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.

More...

 

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.

 

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 bar, the men began to compare their savings.

 

“I only got a Euro 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 Euro, too. It’s unfair that he got ten times more than I did!”

 

“That’s true!” 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!

 

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 20% 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.

 

In the same way as Tracey Emin said she would go and live in France and bankers threaten to move if they don't get their bonuses.

Many threats are made but few are kept.

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IIRC a rumor that Andrew Lloyd Webber was promising to leave Britain if Labour won was a huge factor in their 1997 landslide.

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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.

I really don't follow your logic marshall. Taxing someone is not 'attacking' them. For example if we had a flat rate tax of say 15% and no cap would that be attacking the rich? Wouldn't it be saying you contribute in the same way and at the same level of income as everyone else does. Putting up taxes for the lower and middle income earners but not increasing taxes for the higher income earners is only logical on the basis that the higher earners might (and might is the operative word) go somewhere else. But as I understand it we have 90 persons with capped tax (according to the FT). Of those about 50 were here before the tax cap was applied and didn't flee the Island prior to the cap - so are unlikely to do so if the cap was moved up. And of the other 40 what percentage would go? If they really liked Monaco or Switzerland they would have gone there already.

 

You are quite right to use the word 'may' in your comments.

 

If we continue to have an 18% tax rate without CGT or IHT there will be lots of people who consider that rate (even without a cap) is pretty damned good if you want to live close to the UK. I really don't think we need to be in awe of people moving. If they want to go it will almost certainly be for other reasons.

Edited by manshimajin

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IIRC a rumor that Andrew Lloyd Webber was promising to leave Britain if Labour won was a huge factor in their 1997 landslide.

 

 

Susan Boyle has got millions.

Can we swap her for Jeremy Clarkson?

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