Wisdom Without Waiting: Tax Time Tales
© John L. Mariotti 2002
I was having lunch with friends last week and the conversation turned to paying income taxes, and the government's continuing political debates over taxes. They say never argue about religion, politics and taxes. But we did anyway. Republicans (especially conservative ones) favor lowering taxes as a stimulant to the economy. Democrats (especially liberal ones) prefer raising taxces for the governement to spend --often called the "Reverse Robin Hood Principle") and argue that any kind of across the board tax cuts "favor the rich".
"I'm opposed to those tax cuts", the young liberal declared, "because they mostly benefit the rich. The rich get much more money back than ordinary taxpayers like you and me, and that's not fair."
"But the people with the highest earnings pay most of the taxes in the first place," I argued, "so it stands to reason that they'd get more money back from lower taxes." I could tell that my friend was unimpressed by this logical argument.
Young people are especially prisoners of the myth that the "rich" somehow get a free ride. Nothing could be further from the truth. Only after they work for and build personal wealth do they learn about why most people prefer to keep as much of what they've earned as possible. The little story below puts tax cuts in terms everyone can understand.
Suppose that every day 10 men go to 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 amount and he proceeded to work out the amounts each should pay. And so 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.ÊÊ "I only got a dollar out the $20," declared 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!Ê "That's true," shouted the seventh man. "Why should he get $7 back when I got only $2? The wealthy get all the breaks."ÊÊ "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 he didn't show up for dinner, so the nine 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 and girls , is how the 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. There are lots of good restaurants in Switzerland and the Caribbean.
