Tuesday, March 28, 2006

Tax Funda

This is the logic given by my friend pradeep(Bolero)on how the income taxing system works.

There were 10 men who went out for dinner. The bill for all 10 came to
Rs 100. They decided to split and pay their bill exactly the way we
pay our taxes. The first four men - the poorest - paid nothing; the
fifth paid Re 1, the sixth paid Rs 3, the seventh Rs 7, the eighth Rs
12, the ninth Rs 18., and the tenth man - the richest - paid Rs 59.

The 10 men continued to eat everyday in this restaurant and seemed
quite happy with the arrangement. Until one day, the restaurant owner
threw them a curve! (in tax language a "tax cut"). "Since you are all
such good customers," he said, "I'm going to reduce the cost of your
daily meal by Rs 20." So now dinner for the 10 cost only Rs 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 eat for free. But
what about the other six, the paying customers? How could they divide
Rs 20 windfall so that everyone would get his "fair share"?

The six paying men calculated that Rs 20 divided by six is Rs 3.33.
But if they subtracted that from each of their share of the bill, then
the fifth man and the sixth man would end up being PAID to eat their
meal! So the restaurant owner suggested that it would be fair to
reduce each man's bill in rough proportion to their share, and he
proceeded to work out the amounts each should pay.
And so the fifth man paid nothing (100 per cent saving), the sixth
pitched in Rs 2, the seventh paid Rs 5, the eighth paid Rs 9, the
ninth paid Rs 12, leaving the tenth man with a bill of Rs 52 instead
of his earlier Rs 59. Each of the six was better off than before. And
the first four continued to eat for free.

But once outside the restaurant, the men began to compare their
savings. "I only got a rupee out of the Rs 20," declared the sixth
man, but he got Rs 7!" pointing to the tenth. "Yeah, that's right,"
exclaimed the fifth man, "I only saved a rupee, too. It's unfair that
he got seven times more than me!"

That's true! shouted the seventh man, "why should he get Rs 7 back
when I got only Rs 2? The wealthy get all the breaks!" "Wait a
minute," yelled the first four non-paying men in unison, "We didn't
get anything at all. The system exploits the poor!"

The 9 men surrounded the tenth and beat him up. The next night he
didn't show up for dinner, so the 9 sat down and ate without him. But
when it was time to pay the bill, they discovered, what was very
important. They were FIFTY-TWO Rupees short of paying the bill!

And that, dear friends and law-makers, is how the tax system works.
The people who pay the highest taxes would quite obviously get the
most benefit from a tax reduction. Tax them too much, attack them for
being wealthy, and they just may not show up at the table anymore.
Where would that leave the rest?

Simple story and Straight forward logic

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