Monday, July 12, 2004
You've heard the dry : "Its just a tax cut for the rich!", and it is accepted as fact. But what does that really mean? The following explanation may help.
Suppose that every day, 10 men go out for dinner. The bill for all 10 comes to $100. They decided to pay their bill the way we pay out taxes, and this is the breakdown: The first 4 men (the poorest) paid nothing; The 5th man paid $1; The 6th man paid $3; The 7th man paid $7; The 8th man paid $12; The 9th man paid $18; The 10th man (the richest) paid $59.
All were quite happy with the arrangement, until one day, the owner said "Since you are all such good customers, I'm going to give you $20 discount on your total bill." So dinner for the 10 now only cost $80.
The group still wanted to pay their bill the same way as we pay our taxes.
The first 4 men were unaffected as they would still eat for free. But how should the other six, the paying customers, split the $20 discount so that everyone would get his "fair share"?
They realised that $20 divided by 6 is $3.33, but, if they subtracted that from everyone's share, then the 5th & 6th men would be paid to eat. The restaurateur suggested reducing each man's bill by roughly the same percentage, thus:
The 5th man, like the first 4, now paid nothing (100% saving);
The 6th man paid $2 instead of $3 (33% saving);
The 7th paid $5 instead of $7 (28% saving);
The 8th paid $9 instead of $12 (25% saving); The 9th paid $14 instead of $18 (22% saving);
The 10th paid $49 instead of $59 (16% saving).
Each of the six were better off, and the first four continued to eat for free. But, outside, the men began to compare their savings.
"I only got a dollar out of the 20," declared the 6th man. "That's right," exclaimed the 5th man, "I only saved a dollar too. Its unfair that he got 10 times more than me!"
"That's true!" shouted the seventh man. "Why should he get $10 back when I only got $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 10th man and beat him up.
The next night, the 10th man didn't show up for dinner. The nine sat down and ate without him, but, when they came to pay the bill, they discovered that they didn't have enough money between all of them to pay for even half of it.
That, boys n girls, journo's 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 at the table anymore.