A friend emailed me this "modern parable" about tax cuts. It's a bit lengthy but easily understood.There are various versions on the internet, I discovered, most attributed to a southeastern university economics professor who disavows authorship on his web site. Still worth a read, nonetheless.
Next time you hear Congressional leaders sounding off about who benefits the most or the least from tax cuts, think about this story and see who rings true:
Suppose that every day, ten people go out for dinner 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, according to statistical earnings:
The first four (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 (the richest) would pay $59
So, that's what they decided to do. The ten ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the eatery owner came up with a thought.
"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20." Dinner 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 were unaffected. They would still eat for free. But what about the other six - the paying customers? How could they divide the $20 windfall so that everyone would get his or her "fair share?
"They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth and the sixth persons would each end up being paid to eat their meal. So, the restaurant owner suggested the following:
The fifth person, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now paid $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 – the least proportionate savings).
Each of the six paying customers was better off than before. And the first four continued to eat for free.
But once outside the restaurant, the people began to compare their savings: "I only got a dollar out of the $20," declared the sixth. He pointed to the tenth, "but she got $10!" "Yeah, that's right," exclaimed the fifth.
"I only saved a dollar, too. It's unfair that she got ten times more than me!" "That's true!!" shouted the seventh. "Why should she get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four in unison. "We didn't get anything at all. The system exploits the poor!"
As a consequence the first nine surrounded the tenth and made her feel extremely uncomfortable. The next night the tenth didn't show up for dinner, so the nine sat down and ate without her. But when it came time to pay the bill, they discovered something important. They didn't have enough money among all of them for even half of the bill!
That, folks, is how our tax system functions. The people who PAY the highest taxes get the most dollar benefit (also the LEAST proportional benefit) from a tax reduction (without negatively affecting those of lower income, incidentally). Tax people too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start eating elsewhere, in a friendlier environment.
-Origin Unknown
4 comments:
Jimmie B would like to be paid a fee for using his story!!!!!!!!!
You Lutherans have "stolen" again! Martin Luther took the 95 thesis's from a local Baptist Pastor!
F.Y.I., JB was only the catalyst. I found the original online & found out that he attributed the story to an incorrect author (hence, JB's follow-up email). Plus, I corrected all the grammatical mistakes.
P.S. Did you learn anything from the parable?
Ok...several points to make.
The analogy betrays a certain philosophy: taxes are optional, like going out for dinner, not a necessity of caring for the poor and for our common goals. That's not bad, especially if you agree with that philosophy, but the philosophical basis of the analogy must be noted.
Second, I would question the proportions. In 2004, only 32.4% people payed zero tax dollars. That would be 3 out of the 10, not 4. In addition, that number has greatly increased since GWB's tax credit for children has increased. In the 80's, when this parable was written, the percentage ranged between 18% and 20%. That's two out of the 10. Makes me question what else has been "massaged".
Third, all the parable is doing is re-framing how one looks at the question, and as it stands, it does a good job of being a counterbalance. If you're talking about benefit of tax reductions, sure, it's ridiculous to say that tax reductions help the rich MORE. It's obviously proportionately less. But I would say there are other questions to ask.
My only point in this post was your third point, Gregg. I just get so tired of the MIS-information (or is it DIS-information?) among the talking heads on cable news each day. Your other points are well taken.
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