HUMOR AND HISTORY

Coming to the New World…….

When Hernando Cortes landed in the New World, he brought horses, soldiers – and his accountant. Recent historical research has highlighted Alonso De Avila, who kept the books for the Cortes army. As a reward for excellent service, he was made the first mayor of Veracruz, in what is now Mexico.

How Taxes Work . . .

This is a VERY simple way to understand the tax laws. Read on -- it does make you think!!

Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. 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 $7, the eighth $12, the ninth $18, and the tenth man — the richest — would pay $59.

That's what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement — until one day, the 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 $20." So now dinner for the ten only cost $80.00.

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 divvy up the $20 windfall so that everyone would get his "fair share?"

The six men 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 end up being PAID to eat their meal. So the restaurant 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 paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of his earlier $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 dollar out of the $20," declared the sixth man who pointed to the tenth. "But he got $7!"

"Yeah, that's right," exclaimed the fifth man, "I only saved a dollar, too . . . It's unfair that he got seven times more than me!".

"That's true!" shouted the seventh man, "why should he get $7 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. The system exploits the poor!"

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

And that, boys and girls, journalists and college instructors, is how the 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 at the table anymore.

Where would that leave the rest? Unfortunately, most taxing authorities anywhere cannot seem to grasp this rather straightforward logic!

T. Davies Professor of Accounting & Chair, Division of Accounting and Business Law
The University of South Dakota School of Business
414 E. Clark Street Vermillion, SD 57069 Phone: 605-677-5230 Fax: 605-677-5427

Which US administration brought about the first federal income tax?

It was during the Lincoln administration in the middle of the Civil War that the first tax on income was levied by Congress -- in the Internal Revenue Act of 1862. The rates ranged from 3 to 5 percent. Congress eliminated the tax in 1872.

When did the US federal income tax become a permanent institution?

It has been permanent since 1913, with the passage of the 16th Amendment. As established in that year, the bottom rate was 1 percent on taxable net income over $3,000 for an individual, $4,000 for a married couple. The top rate, for those making more than $500,000, was 7 percent.

Some Quotations

The government that robs Peter to pay Paul can always depend on the support of Paul.
George Bernard Shaw

Tax avoidance means that you hire a $250,000-fee lawyer, and he changes the word ‘evasion’ into the word ‘avoidance.’
Franklin D. Roosevelt

[A tax loophole is] something that benefits the other guy. If it benefits you, it is tax reform.
Russell B Long, US Senator

What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin.
Mark Twain

The government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.
Ronald Reagan

The hardest thing in the world to understand is the income tax.
Albert Einstein

There are three men on a train. One is an economist; one is a logician; and one is a mathematician. They have just crossed the border into Scotland and they see a brown cow standing in a field from the window of the train (and the cow is standing parallel to the train). The economist says, "Look, the cows in Scotland are brown." And the logician says, "No. There are cows in Scotland of which one at least is brown." And the mathematician says, "No. There is at least one cow in Scotland, of which one side appears to be brown."
Mark Haddon