George Rebane
A correspondent sent me a ‘made simple’ version of our federal tax policy that is attributed to David R. Kamerschen, Ph.D., Professor of Economics, University of Georgia. The anecdote, while accurate enough as far as it goes, leaves out an important point that seems to be the crux of the socialist’s argument for a more equal distribution of income. I’ll cover that after we read the good professor’s economics lesson.
“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 o f $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside t he 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.”
What raises the hackles of our left-leaning friends after they finish this little story is that they see nothing wrong with the high earning tenth man being kicked out of the drinking group – in fact, good riddance. You see, they don’t believe the end of the story. Instead, they believe that the nine of them would magically get the missing $59 to distribute among themselves and, therefore, still be able to pay the bar bill.
The socialist believes in a fixed pie, a zero sum game, there is only so much to go around. It never occurs to him that the wealthy guy might have done something to make the pie bigger through his risky investments or starting a company or licensing an important invention or practicing a difficult to learn profession that gave him the high income, and the rest of them the benefits from the high taxes that he pays. These same folks never look at percentages or ratios of tax-to-income, they just look at the dollar amounts and feel cheated. And they always vote for the guy who promises to make things more equitable by making the high earners pay an even greater share of the nation’s tax bill.
And if the national tax receipts don’t quite make up for the cost of all the promised vote-buying programs (or the beer), then the same folks in government just get the added revenues from taxing your assets. They know that you don’t think there is an assets tax, and that you consider inflation as another example of the wealthy corporations just selfishly increasing prices so they can pay more for their CEOs and stock speculators. Beating up on the tenth guy is some of the hope and change promised us come January.
[Tip of the hat to another correspondent who sent the picture of the shocked Washington contemplating his shrinking dollar.]
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