Friday, April 13, 2007

The Dinner Tab (Tax 101 for Liberals)

Yes friends it is that time again, where government either says you didn't pay enough to support our out of control spending or where those less fortunate get to benefit off of the redistribution schemes instituted by the government so people will continue to vote for political clout.

The Dinner Tab (Tax 101 for Liberals)
Tuesday, February 27, 2007 3:12 PM

I often chuckle at the "tax cuts for the rich!", meme. A conversation with someone on the Left usually goes something like this:

"I'm opposed to those tax cuts," they say, "because they benefit the rich. The rich get much more money back than ordinary taxpayers like you and me and that's not fair."

And though you try to argue, "But the rich pay more in the first place, so it stands to reason that they'd get more money back", you can tell they are not really convinced. So I like to tell the parable that follows. Hopefully, it will break through the fog of emotion; and if it doesn't, it's still a pretty good story.

Let's put tax cuts in terms everyone can understand. Let's suppose that every evening 10 men go to a restaurant for dinner. The bill for all ten comes to $100. This bill is divided the same way our tax burden is divided, the first four men pay nothing; the fifth guy pays $1; the sixth guy chips in $3; the seventh $7; the eighth $12; the ninth $18. The tenth man (the richest 10%) would pick up $59.

The men all ate dinner in the restaurant every evening and all seemed quite happy with this arrangement until the restaurant owner threw a wrench in the works. "Since you are my best customers," he said, "From now on, I'm going to reduce your bill by $20. Now dinner for all 10 of you will only cost $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 men call an accounting friend with this conundrum and he suggests that the most equitible plan would be to allocate the savings based on the proportions they were paying before the discount. He worked out the amounts each should pay based on that assumption with the following results: The first five now paid nothing; the sixth pays $2, the seventh $5, the eighth $9, the ninth $12, and the tenth man now would pay $52.

Outside the restaurant, the men began to compare their savings. "I only got a dollar out the $20," complained 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. He (the tenth man) 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 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 vented their outrage on the the tenth. He was so put off that he was no longer willing to have dinner with them anymore. So the next evening he didn't show up. The remaining nine sat down and ate without him. When the bill came, however, they discovered something very important. They were now $52 short!

And that, my friends (and you class warriors, too), is how America's tax system works. The people who pay the most tax will get the most benefit from a tax cut. Attacking them for being wealthy, and feeling put out by their success lifts no one. And if you are diligent enough in your contempt, they could just stop showing up at the table. There are lots of good restaurants in the Cayman Islands.


Becky said...

Wealth of Nations. Book 5.

The burden of government should be distributed among individuals as nearly as possible in proportion to the revenue they enjoy under the protection of the state.

Adam Smith was such a liberal, huh.

tom said...

But the rather large point you are missing is that the burden of the federal government is SO narrowly defined by the Constitution, that April 15th and tax burden day should be just like any other day on the calender.

Protection of the state comes in the forms of copyrights and law enforcement and most people are far beyond paying for those means. Protection of the state doesn't include a welfare system, a corrupt retirement system, bailing out under financed homeowners, this list could go on but I chose to stop it now.

Some people should really educate themselves on the very documents which govern our nation.

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