Too "Taxing" for the Minds at AFP?
Check out this AFP story. Titled "Surging Tax Take Brings US Deficit Down Faster," it details good economic news for all of us.
But there was a paragraph I found fascinating: "'We got to this point largely because of the president's pro-growth policies, especially his tax policies,' [OMB Director Josh Bolton] told reporters, calling on Congress to make the tax cuts -- which largely favoured the rich -- permanent." (emphasis added)
Today, by sheer coincidence, this time-honored but true little allegory arrived in my mailbox, courtesy of a dear friend. Perhaps it's a way of explaining our tax system in a way that even the minds at the AFP can understand:
Suppose that every day, ten men go out for dinner. 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 $7.
The eighth $12.
The ninth $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men ate dinner in the restaurant 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 meal by $20."
So now dinner for the ten only cost $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 eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his "fair share?" The six men 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 eat their meal.
So 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, 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 $59 (16% savings)
Each of the six was better off than before and the first four continued to eat 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. "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 me!" "That's true!" shouted the seventh man. "Why should he get $10 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!"
The nine men surrounded the tenth and beat him up.
The next night the tenth man 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 didn't have enough money between all of them for even half of the bill!
Do you get it now, AFP?
But there was a paragraph I found fascinating: "'We got to this point largely because of the president's pro-growth policies, especially his tax policies,' [OMB Director Josh Bolton] told reporters, calling on Congress to make the tax cuts -- which largely favoured the rich -- permanent." (emphasis added)
Today, by sheer coincidence, this time-honored but true little allegory arrived in my mailbox, courtesy of a dear friend. Perhaps it's a way of explaining our tax system in a way that even the minds at the AFP can understand:
Suppose that every day, ten men go out for dinner. 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 $7.
The eighth $12.
The ninth $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men ate dinner in the restaurant 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 meal by $20."
So now dinner for the ten only cost $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 eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his "fair share?" The six men 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 eat their meal.
So 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, 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 $59 (16% savings)
Each of the six was better off than before and the first four continued to eat 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. "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 me!" "That's true!" shouted the seventh man. "Why should he get $10 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!"
The nine men surrounded the tenth and beat him up.
The next night the tenth man 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 didn't have enough money between all of them for even half of the bill!
Do you get it now, AFP?
posted by LadybugUSA at 4:43 PM
2 Comments:
Why don't I know who this AFP is? Is it Association of Financial Professionals? Which is the 1st site found in a google search. There's also the French Press, which doesn't fit, although from a liberal perspective it would!
I'll spare you the details of how I came to visit this very old posting of yours. But you must understand why the thinking is faulty.
Suppose the 10 men dine regularly as in the hypothetical. The cost of the meal does not go down, but the owner says, "I will only collect 90 dollars now, and you can all owe me 10 dollars to be paid at some future date." This sounds good, so they reduce the contributions according to the way you propose -- most of the savings going to he who paid the most.
A generation later, the owner's son goes to collect the debt, which at $10 a day for a generation has gotten sizable. Who shall pay it?
For your information, the cost of government, like the cost of dinner, is not going down. Tax cuts were sold to us as a temporary measure to jump start the economy. Now, Republicans say the economy is doing great. I guess we don't need the tax cuts any more. Agreed?
Please visit the Schapira blog, What we know so far ...
... and tell ''em Big Mitch sent ya!
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