Believe…

I’ve been looking for something like this for ages!

A really interesting little story to illustrate how our tax system works here in the UK posted on facebook by a friend of mine:

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Suppose that once a month, ten men go out for beer (or ten women go shopping if you prefer) and the bill for all of them comes to £100.

If they paid their bill the way we pay our taxes and claim State benefits, 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.
• And the tenth man (the richest) would pay £59.

So, that’s what they decided to do.

The ten men drank in the bar every month and seemed quite happy with the arrangement until, one day, the owner caused them a little problem.

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your weekly 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; the paying customers?

How could they divide the £20 windfall so that everyone would get his fair share?

They realised that £20 divided by six is £3.33 but if they subtracted that from everybody’s share then not only would the first four men still be drinking for free but the fifth and sixth man would each end up being paid to drink his beer.

So the bar owner suggested a different system:

• The fifth man, like the first four, now paid nothing. (100% improvement)
• The sixth man paid £2 instead of £3 (33% better off)
• The seventh paid £5 instead of £7. (29% better off)
• The eighth paid £9 instead of £12. (25% better off)
• The ninth paid £14 instead of £18. (23% better off)
• And the tenth man now paid £49 instead of £59. (17% better off)

Each of the last six was better off than before with the first four continuing to drink for free.

But, once outside the bar, the men began to compare their savings.

“I only got £1 out of the £20 saving,” declared the sixth man.

He pointed to the tenth man, “but he got £10!”

“Yes, that’s right,” exclaimed the fifth man.

“I only saved a £1 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 only got £2? The rich 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!”

So, the nine men surrounded the tenth and beat him up.

Funnily enough, the next month the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him.

But when it came to pay for their drinks, they discovered something important – they didn’t have enough money between all of them to pay for even half the bill.

That’s how the UK tax system works (Other tax systems are available – see foot of blog post).

The people who already pay the highest taxes do tend to get the most benefit from tax reliefs and reductions.

Tax them too much, attack them for being wealthy and they just might not show up anymore.

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Interesting stats and figures on who contributes what to GDP

Check out the top 100 FTSE organisations in the UK and how much they contribute in tax to the country:

http://www.guardian.co.uk/business/interactive/2009/feb/02/tax-database

Read the following article on which earning brackets contribute what to the Gross Domestic Product in the UK (in 2009)

http://news.bbc.co.uk/1/hi/8417205.stm (I also recommend checking out the BBC’s selection of comments at the bottom for some thought provoking points)

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Other Tax Systems are Available

(although there are only 2 really workable/used ones)

• The tax system that the UK (and most of the Western world) uses is the Progressive Tax System where you are taxed depending on what you earn. The more you earn, the more you’re taxed.
• Russia and much of Eastern Europe (Greece is considering it and there is a growing movement in the US to implement a variation on it) have a Flat Tax System where everyone gets taxed the same amount regardless of how much they earn.

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I hate scaremongering, and I’m not an economist (nor, thank god, a trade unionist) so I’m not going to point you at any more stuff that might make you feel uncomfortable.

I do however like a fair argument and it seems to me that much of the country has far too high an opinion of itself as to how much it contributes (or does not) to the country’s economic status and what the country “owes” them as a result.