March 27, 2017

Who Should Pay Their Fair Share?

We hear so much these days of “fairness.” Indeed, liberals have been beating the drums hard that it is time for the “rich” to start paying their “fair share.”

In reality, 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 truth, 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.

Presidents Kennedy and Reagan both understood that to stimulate economic growth and bring more money into government’s coffers, it is necessary to LOWER taxes on those who shoulder the burdens, and free up the economy.

In his annual budget message to Congress, President Kennedy explained the reasoning behind lowering tax rates:

“Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased — not a reduced — flow of revenues to the federal government.”

This is exactly what Mitt Romney plans to do to stimulate economic growth and to balance the federal budget–combined with numerous other things, like making the nation energy independent.

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!

That is how our tax system really works. The people who pay the highest taxes get the most benefit from a tax reduction — and it is they who stimulate the economy when we leave their earned income in their hands to spend in the economy. As that money passes through many hands, the wealth is distributed naturally, and it is taxed each time it changes hands.

But tax these too much, as we have, and 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, as we now see in the case of many French, German and American citizens whose wealth has been threatened to the point of removing it from their native countries’ borders.

PUBLIUS

Comments

  1. Wow–I sure got straightened out on this. I had no idea. Thanx for the info update.

  2. Im one of the ones that hasn’t been paying any taxes, because of the child tax credit. But if the economy was better, i’d be making enough to start paying taxes. Bring on the better economy, because I wanna start paying my share.

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