Thursday, January 16, 2003

The Truth about Taxes

Here's a reposting of the Kenneth Wangler e-mail that is making the rounds.

I share it here because, not only is it true, it's a great example of distilling complexity into an analogy that people can understand. Tax policy, by its very nature, seems to require a certain amount of obfuscation to succeed. This little story exposes some of the uncomfortable issues at stake.

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.

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 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 paid nothing, the sixth pitched in $2, the seventh
paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with
bill of $52 instead of his earlier $59.

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 $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

"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, journalists and college instructors, is how
the tax system works.

The people who pay the highest taxes get the most benefit from a tax

Tax them too much, attack them for being wealthy, and they just may not
showup at the table anymore.

Believe me, if this hasn't shown up in your e-mailbox yet it's only because your father-n-law has not yet figured out how to click SEND.

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