March 29, 2017

Bringing Fairness to Taxes

As the propaganda press stirs up the occupying proletariat in our nation, and our streets become filled with couch potatoes demanding their fair share of that which has been earned by others, the insanity and impossibility of the scene serves as ample proof that too much weed indeed dulls the human brain’s ability to reason.

The 99 percent demand that they be supported by the 1 percent. They demand that taxation be applied “fairly.”

Indeed, 47 percent of the country pays no federal income taxes whatsoever, and the top 25 percent of earners pay 87 percent of the total burden. The top 1 percent pay 36% of all federal income taxes, while the top 5 percent pay 58%.

In fact, this distribution scheme is unfair, but it is not those who now bear a significantly higher portion of the burden who should be made to shoulder even more of the load.

There is a story that I heard years ago about the fairness of the distribution of tax burdens that I think will be instructive. It’s precise origin is unknown as far as I know, but I would like to give proper credit if I could find the person who developed it.

Suppose that every day ten men go out for beer and 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 would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do. The ten men drank in the bar 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 beer by $20. Drinks for the ten now cost just $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 drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They 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 drink his beer. So, the bar 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 pay $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 drink 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 man,’ 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 I!’

‘That’s true!!’ shouted the seventh 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!’

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers 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!

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, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

Publius

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  1. […] in its distribution of the tax burden. In our case, it is the last. In our May 10, 2012 article Bringing Fairness to Taxes we demonstrated that relatively few Americans shoulder the heavy burden of America’s spending […]

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