I was having lunch with one of my favorite clients last week and the
conversation turned to the government's recent round of tax cuts. "I'm
opposed to those tax cuts," the retired college instructor declared, "because
they benefit the rich. The rich get much more money back than ordinary
taxpayers like you and me and that's not fair."
"But the rich pay more in the first place," I argued, "so it stands to reason
that they'd get more money back." I could tell that my friend was
unimpressed by this meager argument. So I said to him, let's put tax cuts in
terms everyone can understand:
Suppose that every day 10 men go to a restaurant for dinner. The bill for
all ten comes to $100. If it was paid the way we pay our taxes, the first
four men would pay nothing; the fifth would pay $1; the sixth would pay $3;
the seventh $7; the eighth $12; the ninth $18. The tenth man (the richest)
would pay $59.
The 10 men ate dinner in the restaurant every day and seemed quite happy with
the arrangement until 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 meal by
$20. Now dinner for the 10 only costs $80.
The first four are unaffected. They still eat for free. Can you figure out
how to divvy up the $20 savings among the remaining six so that everyone gets
his fair share? The men realize that $20 divided by 6 is $3.33, but if they
subtract that from everybody's share, then the fifth man and the sixth man
would end up being paid to eat their meal.
The restaurant owner suggested that it would be fair to reduce each man's
bill by roughly the same percentage, being sure to give each a break, and he
proceeded to work out the amounts each should pay. And so now 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
$59.
Outside the restaurant, the men began to compare their savings. "I only got
a dollar out of the $20," complained the sixth man, pointing to the tenth,
"and 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." Then, the nine men surrounded the tenth man (the richest one, paying
the most) and beat him up.
The next night the richest man didn't show up for dinner, so now the nine men
sat down and ate without him. But when it came time to pay the bill, they
discovered something important. They were $52 short!
And that, boys, girls and college instructors, is how America's 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 any more. There are lots of good restaurants in
Switzerland and the Caribbean.
conversation turned to the government's recent round of tax cuts. "I'm
opposed to those tax cuts," the retired college instructor declared, "because
they benefit the rich. The rich get much more money back than ordinary
taxpayers like you and me and that's not fair."
"But the rich pay more in the first place," I argued, "so it stands to reason
that they'd get more money back." I could tell that my friend was
unimpressed by this meager argument. So I said to him, let's put tax cuts in
terms everyone can understand:
Suppose that every day 10 men go to a restaurant for dinner. The bill for
all ten comes to $100. If it was paid the way we pay our taxes, the first
four men would pay nothing; the fifth would pay $1; the sixth would pay $3;
the seventh $7; the eighth $12; the ninth $18. The tenth man (the richest)
would pay $59.
The 10 men ate dinner in the restaurant every day and seemed quite happy with
the arrangement until 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 meal by
$20. Now dinner for the 10 only costs $80.
The first four are unaffected. They still eat for free. Can you figure out
how to divvy up the $20 savings among the remaining six so that everyone gets
his fair share? The men realize that $20 divided by 6 is $3.33, but if they
subtract that from everybody's share, then the fifth man and the sixth man
would end up being paid to eat their meal.
The restaurant owner suggested that it would be fair to reduce each man's
bill by roughly the same percentage, being sure to give each a break, and he
proceeded to work out the amounts each should pay. And so now 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
$59.
Outside the restaurant, the men began to compare their savings. "I only got
a dollar out of the $20," complained the sixth man, pointing to the tenth,
"and 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." Then, the nine men surrounded the tenth man (the richest one, paying
the most) and beat him up.
The next night the richest man didn't show up for dinner, so now the nine men
sat down and ate without him. But when it came time to pay the bill, they
discovered something important. They were $52 short!
And that, boys, girls and college instructors, is how America's 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 any more. There are lots of good restaurants in
Switzerland and the Caribbean.