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## sen8or

802 posts

Ultimate Geek

# 1791616 30-May-2017 11:23
One person supports this post

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 ball. “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 men would 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 ? 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 a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

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

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 dollar out of the \$20 saving,” 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 benefit than me!” “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. This new tax 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 their 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 government ministers, is how our tax system works. The people who already pay the highest taxes will naturally 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.

David R. Kamerschen, Ph.D. — Professor of Economics.

## blackjack17

884 posts

Ultimate Geek

# 1791643 30-May-2017 11:35

Jas777:

MikeAqua:

I don't want those tax cuts to extend to me.  I don't need/want a tax cut.  I would like people on lower incomes to pay less tax.

But I don't want to pay more tax.

I would like to see companies pay more tax ... I have never understood why companies are taxed on profit - it enables complex tax dodging behaviour.  PAYE earners are taxed on revenue, whether they make a loss or profit for the year.

I suppose GST could be considered a tax on business revenue, but ultimately it's paid by the end consumer.

what if company tax was abolished and we transitioned to a point where every company paid tax on every single dollar of revenue (at a low rate)?

The cost would be transferred if possible and if not then the business would close.

At first glance this seems like an not terrible idea, until you realise that the only thing it would do is encourage margins to be as high as possible.  Companies that sell products with low margins but revenue over would pay huge amounts of tax while those that have high margins and revenue would pay very little tax.  Think of all the value brands that supermarkets sell.

## Wiggum

1199 posts

Uber Geek
Inactive user

# 1791658 30-May-2017 11:41

sen8or:

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 ball. “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 men would 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 ? 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 a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

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

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 dollar out of the \$20 saving,” 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 benefit than me!” “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. This new tax 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 their 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 government ministers, is how our tax system works. The people who already pay the highest taxes will naturally 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.

David R. Kamerschen, Ph.D. — Professor of Economics.

This is absolutely brilliant.

## gsr

105 posts

Master Geek

# 1791680 30-May-2017 12:23

sen8or:

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 ball. “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 men would 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 ? 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 a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

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

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 dollar out of the \$20 saving,” 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 benefit than me!” “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. This new tax 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 their 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 government ministers, is how our tax system works. The people who already pay the highest taxes will naturally 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.

David R. Kamerschen, Ph.D. — Professor of Economics.

The problem is that no one asked for a discount. Instead, people wanted the owner to invest in repairing the air-con in his bar because the poorest guy doesn't own very warm clothes, and it would benefit everyone anyway.

## sen8or

802 posts

Ultimate Geek

# 1791712 30-May-2017 12:46
One person supports this post

The bloke that pays the highest bill owns an aircon company. Using the additional savings he got, he employed 3 others who were currently unemployed and on a benefit, increasing output and generating jobs in part with his tax savings,  and reducing the drain on the economy by taking 3 people off the benefit.

The three blokes he employed started drinking at the pub, increasing the pubs turnover by 30% using money they had earned which was now more than their benefit when they couldn't afford to drink at all. With the increased turnover, the pub then invested that in some new airconditioning.

Different ways to skin a cat.....

## ajobbins

Awesome
4855 posts

Uber Geek

Trusted
Subscriber

# 1791730 30-May-2017 13:19

tripper1000:

Besides, insurance is socialism by a different name

Except insurance is the socialisation of risk but the privatisation of benefit/reward, whereas socialism is the socialisation of both risk and reward.

With insurance, if claims < premiums, the insurance owners keep the profit. If claims > premiums, premiums increase to cover. At least with socialism, any 'profit' goes back into the system.

## MikeAqua

5385 posts

Uber Geek

# 1791736 30-May-2017 13:32

blackjack17:

Jas777:

MikeAqua:

what if company tax was abolished and we transitioned to a point where every company paid tax on every single dollar of revenue (at a low rate)?

The cost would be transferred if possible and if not then the business would close.

At first glance this seems like an not terrible idea, until you realise that the only thing it would do is encourage margins to be as high as possible.  Companies that sell products with low margins but revenue over would pay huge amounts of tax while those that have high margins and revenue would pay very little tax.  Think of all the value brands that supermarkets sell.

Surely they need to earn money to pay costs would drive revenue maximising behaviour.  And surely competition would manage margin to the extent it does now.

And companies would not get to dodge tax by selling products in NZ at a manufactured loss, while transferring profit into a low tax jurisdiction.

There is also a simplicity argument.  No need for complicated regulation of deductible expenses etc.

My point is mostly motivated by fairness.  As a PAYE earner I pay on my revenue, there is no profit (loss) calculated.

Mike

## Batman

20771 posts

Uber Geek

Trusted

# 1791742 30-May-2017 13:52

sen8or:

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 ball. “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 men would 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 ? 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 a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

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

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 dollar out of the \$20 saving,” 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 benefit than me!” “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. This new tax 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 their 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 government ministers, is how our tax system works. The people who already pay the highest taxes will naturally 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.

David R. Kamerschen, Ph.D. — Professor of Economics.

Another economics professor did this.

One day he told his class everyone's getting an A for this week's assignment. Some people didn't work very hard.

So he said the same thing the following week. More people didn't work very hard.

And again and again and again. Eventually nobody did any work.

Involuntary autocorrect in operation on mobile device. Apologies in advance.

## sen8or

802 posts

Ultimate Geek

# 1791751 30-May-2017 13:58

What if the company you worked for had to pay tax on every dollar of revenue rather than only on profit, do you think that would leave more of less in their pockets for investment in staff, expansion, research and development, etc etc etc? If you take money from one side, then it has to be recouped elsewhere. Make a company pay more in tax and they will reduce expenses to compensate. Companies exist to make a profit, plain and simple.

The ludicrous "revenue tax" -

Company A sells widgets at \$1000 each, but they cost \$900 to produce and market, only \$100 profit per widget, \$30 is currently put aside for tax, \$70 after tax profit. To keep the status quo on tax revenue, your tax rate would have to be at least 3% of revenue.

Now Company B sells widgets at \$1000 each, but they are shrewd and they only cost \$500 to produce and market, \$500 profit per widget, \$ 150 is put aside for profit and \$350 after tax profit. To keep the status quo on tax revenue, your tax rate would have to be at least 15% of revenue.

Problem is, if you put it at 3% of revenue, company B is now significantly more profitable and tax revenue goes down \$120. If you put it at 15%, then company A goes out of business.

Both companies have produced the same turnover, one tax rate applied to profits mean both retain a margin for expansion, re-investment or (shocking I know to those that despise greedy capitalists) a return to the owner who has risked their own capital to make widgets. The revenue based tax puts someone out of business.

## tdgeek

17627 posts

Uber Geek

Trusted

# 1791779 30-May-2017 14:52

You can only tax profit. That's already a simple solution as the IRD gets a simple set of accounts showing taxable earnings. You have to deduct expenses, that's already easy

What needs to happen is identifying tax loopholes, dodgyness, and blocking those

## MikeAqua

5385 posts

Uber Geek

# 1791785 30-May-2017 15:03
One person supports this post

tdgeek:

You can only tax profit.

That's not true.  My 'revenue' (i.e. salary and interest) are taxed every year.

There are costs associated with earning that salary, bu they are not tax deductible.

This is because I'm a person not a business.    I've never seen a logical justification for that distinction.

According to a mate who works treasury on tax ... taxes generally should target things that cannot change to avoid tax - tax apple trees and the owner will cut them down.  Tax land and he may plant apple trees to make money.

Revenue isn't something that can manipulated - without forgoing it.

profit is easily fudged by accrued costs.

Mike

## Geektastic

13218 posts

Uber Geek

Trusted

# 1791791 30-May-2017 15:12

ajobbins:

tripper1000:

Besides, insurance is socialism by a different name

Except insurance is the socialisation of risk but the privatisation of benefit/reward, whereas socialism is the socialisation of both risk and reward.

With insurance, if claims < premiums, the insurance owners keep the profit. If claims > premiums, premiums increase to cover. At least with socialism, any 'profit' goes back into the system.

So, if the government ceases to provide health cover, buys a huge chunk of shares in the insurance companies as an investment (thus owning part of the companies and getting profit share via dividends) and then allows a tax deduction on the premiums payable to those companies, is that similar or dissimilar?

## Geektastic

13218 posts

Uber Geek

Trusted

# 1791793 30-May-2017 15:18

MikeAqua:

tdgeek:

You can only tax profit.

That's not true.  My 'revenue' (i.e. salary and interest) are taxed every year.

There are costs associated with earning that salary, bu they are not tax deductible.

This is because I'm a person not a business.    I've never seen a logical justification for that distinction.

According to a mate who works treasury on tax ... taxes generally should target things that cannot change to avoid tax - tax apple trees and the owner will cut them down.  Tax land and he may plant apple trees to make money.

Revenue isn't something that can manipulated - without forgoing it.

profit is easily fudged by accrued costs.

Revenue can be manipulated by removing the profit incentive.

If  the business can do 80% of the work and get 90% of the money, why would it bother doing the other 20% of the work just so it can get taxed more on the revenue? It would probably have unintended consequences.

"Should we expand and employ 100 more staff?"

"Why?"

"We'll increase turnover 20%!"

"Yeah, nah - we'll loose 33% of that to the tax man. Let's go fishing!"

## MikeAqua

5385 posts

Uber Geek

# 1791804 30-May-2017 15:24

sen8or:

The ludicrous "revenue tax" -

Company A sells widgets at [snip]

Now Company B sells widgets at \$1000 each [snip]

Both companies have produced the same turnover, one tax rate applied to profits mean both retain a margin for expansion, re-investment or (shocking I know to those that despise greedy capitalists) a return to the owner who has risked their own capital to make widgets. The revenue based tax puts someone out of business.

Where as what happens now is Company A sells a widget at \$1,000 for \$100 profit.  Pays \$30 tax in NZ.

Company B sells a widget for \$1,000. They have really made \$100 profit but they pay a BS made-up royalty of \$99 to an overseas parent company reducing their taxable profit to \$1 so they only pay \$0.30 tax in NZ.

Under my model both companies pay 3% revenue tax on a \$1,000 widget which is \$30 tax for NZ either way.

If Company B is useless and goes broke Company A will sell twice as many widgets until Company C opens up shop to have a crack at them.

Mike

## MikeAqua

5385 posts

Uber Geek

# 1791809 30-May-2017 15:29

Geektastic:

Revenue can be manipulated by removing the profit incentive.

If  the business can do 80% of the work and get 90% of the money, why would it bother doing the other 20% of the work just so it can get taxed more on the revenue? It would probably have unintended consequences.

"Should we expand and employ 100 more staff?"

"Why?"

"We'll increase turnover 20%!"

"Yeah, nah - we'll loose 33% of that to the tax man. Let's go fishing!"

Everything has unintended consequences.

You would probably only have to tax revenue at around 5% to equate to taxing at 30% so the company still keeps almost all the additional revenue.

Mike

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