Liberty Scott uses the tax chart I showed in the previous post to argue the case for tax cuts.
That reminded me of this fable:
Suppose that every day, ten people went out for dinner. The bill for all ten came to $100.
If they paid their bill the way we pay our taxes, it would go something like this:
The first four (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 (the richest) would pay $59.
So that’s what they decided to do. The ten people ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw offered to reward their loyal custom by reducing the cost of the meal by $20.
So now the dinner for ten only cost $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 divvy up the $20 windfall so that everyone would get his ‘fair share’?
The six people realised that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth and the sixth people would each end up being ‘paid’ to eat their meal.
So, the restaurant owner suggested that it would be fair to reduce each diner’s bill by roughly the same amount, and she proceeded to work out the amounts each should pay.
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).
Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the diners began to compare their savings.
“I only got a dollar out of the $20,” declared the sixth. He pointed to the tenth diner, “but he got $10.”
Yeah, that’s right,” exclaimed the fifth diner. “I only saved a dollar too. It’s unfair that he got ten times more than me!”
“That’s true!” shouted the seventh diner. “Why should he get $10 back when I got only $2? The wealthy get all the breaks.”
“Wait a minute,” yelled the first four diners in unison. “We didn’t get anything at all. The system exploits the poor!” The nine diners 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 they didn’t have enough money between all of them for even half of the bill.
And that, boys 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, attack them for being wealthy, and they just may not show up at the table any more. There are lots of good restaurants in Australia and Europe.