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On Death and Taxes

With elections just around the corner, taxation rhetoric is running high. To that end I wanted to share with you an illustration that came my way (source unknown), that puts current U.S. tax policy in perspective.

Let's put tax cuts in terms everyone can  understand. 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.

So, 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 each 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, 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 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  me!"

"That's true!!" shouted the seventh man.  "Why should he get $10 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 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 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  at the table  anymore.


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This page contains a single entry from the blog posted on October 30, 2004 11:22 AM.

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