About a week ago an email list of close friends got an interesting forward about the tax system. Perhaps you’ve seen this floating around the interweb. A friend of mine came up with a pretty great response, to which I added a post script. See what you think:
Original “Tax Lesson” forward:
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
beers 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 everybody’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 dollar out of the $20,’ declared the sixth man.
He pointed to the tenth man, ‘but he got $10!’ ‘Yeah, that’s right,’
exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he
got TEN times more than I!’‘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 very important….they didn’t have enough money between
all of them for even half of the bill!And that, boys and girls, 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.
Here is my friend’s reply (with just a bit of editing):
Hmm…
The problem with this analogy is that that #1 poor guy and the #10 rich guy are drinking in the same bar, which would never happen.In reality, the #10 guy pays more so he can have:
roads built to get him to his swanky bar, public works to clear the snow from the valet stand and clean the streets around the bar, police and fire resources to keep his bar safe, public transit into his downtown bar so his table gets cleared by busboys and so that a nice #2 can hand him a towel to dry his hands, homeless shelters to keep the “bums” out of the alley behind his condo, schools to help the #1’s kids grow up to be #4s that don’t need the help, prisons to keep his #10 family “safe”……And all with enough money left over to make sure that high real estate prices and gated communities keeps those #1-#4s out of their neighborhoods.
But I see your point…
To which I would only add:
But you forgot one important part of the story. #10 got rich in the first place because the company that’s been in his family for a few generations happens to know people in Washington, who happen to arrange the sub-contracting (aka “privatizing”) of most government functions like paving those roads or running health care or rebuilding newly destroyed middle eastern countries. So really, all that money in #10’s bank roll is actually the redistributed taxes of the bottom 9. I can make a flow chart if you want.
How controversial…
