SIMPLE EXPLANATIONS #2

SIMPLE EXPLANATIONS #2

(previous post in this series is at http://nebirucrossing.blogspot.ca/2011/04/stimulus-package.html )

Every day, ten men go out for a beer and the total bill 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 5^th would pay $1.  The 6^th would pay $3. The 7^th would pay $7; the 8^th $12; the 9^th $18.  The tenth man (the richest) would pay $59.  So that’s what they decided to do:  the men drank in the bar every day and seemed quite happy with their arrangement until one day the owner threw them a curve. “Since you’re all such good customers”, he said, “I’m going to reduce the cost of your drinking by $20.” The daily bill now came to just $80.  The group decided that each still wanted to pay his bill the way we pay our taxes, so the first four men were unaffected: they’d still drink free.  But what about the other six men – the paying customers?  How could they divide the $20 reduction so that everyone would get a fair share of the reduction?  $20.00 divided by six is $3.33, but if that were subtracted from each share, the 5^th and 6^th men would be paid to drink their beer!  So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the tax-apportioned percentage, and he proceeded to work out the amounts:  the 5^th man, like the first four, now drank free (100% savings).  The 6^th now paid $2 instead of $3, saving 33%; the 7^th now paid $5 instead of $7, saving 28%; the 8^th now paid $9 instead of $12, saving 25%; the 9^th now paid $14 instead of $18, saving 22%; and the 10^th now paid $49 instead of $59, saving $16%.  Each of the six paying customers was better off than before and the first four continued to drink for free. But once they were outside the bar, the men began to compare their savings.

“I only got a dollar out of the $20“, declared the 6^th man. He pointed to the 10^th man, “but he got $10!”

“Yeah, that’s right”, shouted the 7^th 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!”

So the nine men surrounded the 10^th man and beat him up. The next night the 10^th man didn’t show up for drinks, so the nine sat down and had beer without him. But when it came time to pay the bill, they discovered something important:  they didn’t have enough money between all of them to pay 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 and attack them merely for being wealthy, and eventually they just won’t show up anymore.  In fact, they might start drinking ‘off-shore’ where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.  For those who do not understand, no explanation is possible.