10 pence Tax Abolished! Gordon Brown (PM) dances for hearts and minds

© of Winslie Gomez

With bar room economics.

“This is a short-term political fix. It has done enormous long-term damage to any reputation he had for economic competence.”

He went on: “I think [people] see a government that has abandoned the founding principles of New Labour, which were that you get away from the emergency budgets of the Denis Healey era, that you did not fight class war campaigns and that you tried to occupy the middle ground.”

Words of George Osbourne, shadow chancellor (for those of you not familiar with UK politics. George is on the opposition side of the the House of Commons. The Labour party, which used to be left of centre and the party in power with the Conservative  part in opposition who used to be right of centre similar to Republicans in US).

Even Alistair Darling the current chancellor admits the 10p tax abolition “could have been handled better” according to the Telegraph.

Under plans announced yesterday, the Treasury will borrow 2.7 billion to fund a 120 pound (approx 240 USD) tax cut for all basic-rate taxpayers. Mr Darling said the scheme would not fuel inflation and insisted Government borrowing rules would not be broken. It will only be offered this year.

Interestingly David Cameron ( leader of the Conservative party) possibly had the clearest observation.

[….] told Mr Brown: “Yesterday we all paid £2.7 billion to keep you in your job.”

Perhaps it’s not all bad news;

Defending Brown from claims that he is now the most unpopular prime minister in Labour history, Balls insisted that he prime minister could claw back from the role of villain to a figure of respect, just as famous sportsmen do. “These are times when politicians in most governments get tested and you find out whether you are strong, ideologically divided or united,” he said. “You sort out those people that can look forward, rather than backwards, and put the national interest first”.

Confused!

Then this wee tale might just help. Got it in an email from a friend, who does not want to be named. Therefore, Source Unknown.


BAR ROOM 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.

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 everyone'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 restaurant, the men
began to compare their savings.

'I only got a pound out of the £20,' 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 pound,
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 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

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.

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