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For example, should we give tax cuts to the rich? The parable has been attributed to Thomas Davies, Professor of Accounting at the University of South Dakota, but he denies authorship. A shortened version of the parable first appeared in the April 21, 2001 issue of the National Review in a column by William F. Buckley, Jr. He discussed and analyzed the content of it, but says a friend had seen it on the Internet and sent it to him. At this point, the originator of the parable is unknown. The lessons derived from the parable are important and timely as we consider President Bush’s efforts to make his previous tax cuts permanent. Here is the story: A Tax Cut Parable 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; and the ninth $18. The tenth man—the
richest—would pay $59. 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 only costs $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, and leaving the tenth man with a 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. 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 I did!’’ ’’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 surrounded the tenth and beat him up. The next night he didn’t show up for dinner, so the nine sat down, ordered their $80 worth of food, and ate without him. But when it came time to pay the bill, they discovered something important. They were $52 short! And that, in short, is how our tax system works. The people who pay the highest taxes should get the most benefit from a tax reduction. Tax them too much, and attack them for being wealthy, and they just may not show up at the table anymore. Keep this parable in mind when you ponder actual IRS data that now show 10 percent of taxpaying citizens pay 66 percent of all taxes collected. At the other end of the spectrum, 50 percent of the taxpayers pay only a miniscule 3.5 percent of total income tax revenue. *Ted Tripp is
an International Consultant in high-tech manufacturing
methods. He has BS and MS degrees in Chemical Engineering
from MIT. You can reach him at tripp@gis.net. *Send your questions
comments to ValleyPatriot@aol.com |
Recently while perusing some old
files, I came across an article about our graduated
income tax policy and how it works. The article is in the
form of a parable and offers an insight to human nature
on how people view taxes and tax cuts, and who should pay
for them.