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THU MAR 29, 2012 AT 05:26 AM PDT
I wrote this to make as clear as I possibly could the failure of the Bush tax cuts.
Let’s say you own a lemonade stand in a very small town.
This town has 100 people living in it. Every day, 50 of the town’s citizens buy your lemonade.
To be able to serve the citizens, you have hired 2 of your friends to help you run the stand.
You have a solid and loyal customer base and serve half the town lemonade everyday! You’re making a lot of money! Very Good!
Of course, you have costs, which means you can’t keep all the money you make. You have to spend money to keep the lemonade stand operating. You have to pay your friends you hired for their work, you have to pay to upkeep and update the stand itself, and you have to pay the town that your lemonade stand is in. However, after this, you are still left with a lot of money and are doing great! You are making what’s called a “profit” because you are charging more for the lemonade than it costs you to make it. This can sound like a dirty trick, but when reasonable, it’s simply business.
Why should you have to pay the town (government) for the money YOU made? That’s a great question!
You see, without the town, there would be no homes, roads, electricity, running water, police, firemen, hospital, post office, schools, or any civilization. Therefor, you would not be able to run your business in this town.
By governing, they create the civilization that your lemonade stand runs and thrives in. So you give them a small amount of your money. These are called “taxes”.
In politics, there are two basic beliefs about how much in taxes businesses like yours should pay.
One side believes that we should slightly raise taxes on businesses like yours and people who have a lot of money so that the town can raise more money to create jobs so that people not as fortunate as you can work for more money to spend at your lemonade stand.
The other side believes that you should pay much lower taxes than you already do. They say that if you keep your money and not contribute to the town you run your lemonade stand in, that you will have more money to create jobs and contribute to the town the way you want to, not the town government’s way.
Let’s imagine the last way…
Let’s say that you get to keep all the money you make and not have to give any to the town. It’s all yours!
Now you can use that money to expand your lemonade stand and even hire a few more of your friends! Maybe even sell different kinds of lemonade! This sounds like a great idea!
The problem is that now that you don’t give the town money anymore, the citizens who have a lot less money than you do have to pay more to make up for what you don’t pay. The people that buy your lemonade everyday now have less money, so they aren’t buying your lemonade as much, if at all. They have to cut back.
But That’s okay!
You still have a lot of money and you just hired two more friends. Now four friends work for you. You also have to pay them, but now that you don’t pay the town, you can easily afford it.
However, now that the people of the town have less money, you only serve 25 people a day now. With less customers buying lemonade, your new friends that you hired aren’t needed. In fact, now just you and another friend is all that is needed to serve 25 people. Since it’s bad for your lemonade stand to spend money on employees you don’t need, you have to fire them. :(
So now you have cut back on how much you pay your friends, but you are still not making as much money as you did when you had 50 customers a day. So you cut back by buying cheaper lemonade while charging a little more for it. Since you raised your prices, you dropped down to 20 customers a day. But since you need to try and keep making as much money as you always have, you keep cutting back. You pay your friend less for their work. You might not feel good about this, but you don’t want to lose the money you are making for yourself and you business.
Eventually, the amount of money you make everyday will stay the same or “Stagnate” and you won’t be able to reach the amount of money you use to make when the citizens of the town had the money to buy your lemonade.
You will still have a lot of money for yourself, but your lemonade stand will never recover and sooner or later, a bigger lemonade stand that makes more money everyday will either buy you out or run you out of business.
You don’t want that to happen, but still, you like not giving the town the money you worked for.
Then you find out that there is another town across the river that lets you pay them even less than the town you are in. Also, the citizens of this town will work for much, much less than the workers you have now. So even though this means you would have to fire all your friends and move your lemonade stand to that town, it would mean you get to keep even more of your money! You would even get to sell your lemonade to your hometown even though it is being made in the other town! Wonderful!
The only problem is that now that you’ve closed your lemonade stand, even more people in your hometown have less money because you no longer pay them for work. You are making a lot of money for yourself, but the town you started in is very poor and your lemonade is made cheaper and is not as good as it use to be.
You have done very well for yourself and still have a lot of money, but your lemonade stand has suffered greatly and people in your hometown are very angry with you for putting your personal profit over the community you got all that money in. They are the people who bought your lemonade and made it possible for you to have all that money. They are not happy with you and will remember what you did forever.
The moral of this story is that having more money does not make you a good person. Getting too carried away with wanting more money can actually make you a horrible person. Money is not evil, it is just pieces of paper. Greed is evil.
Being a good person means doing what you feel is right and fair to others, not always what’s best for you.
Now you can go outside and play. :)
Thank you TheNewDeal00. Sometimes the best explanation for adults is one geared toward children.
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