Victory Is Mine

Tax fun with liberals

From: T*****
To: Lots of people, myself included
Date: Friday March 11, 2005 12:09 PM
Subject: FW: Taxes

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 nineth $18

The tenth man (the wealthiest) 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."

(Equivalent/analogy to a tax reduction)

So, now dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes, with the poorest paying little to nothing and the wealthiest, the most.

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 (the "wealthy"

one) "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!"

(sound familiar?)

"Wait a minute," yelled the first four men in unison.

"We didn't get anything at all. The system exploits the poor!"

(sound familiar?).

So 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.

There are lots of good restaurants in Europe and Asia.

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From: D***
To: Errbody who was on the original email
Date: Friday 3/25/2005 12:21 PM
Subject: Re: taxes

Both the analogy and the math are completely bogus. (This is assuming that the original dinner bill is really split the way taxes are, which I doubt—I don’t believe that 40% of the U.S. population pays no taxes. But put that aside.)

The major fault with this analogy is that it assumes that spending is going down—i.e., that the U.S. budget shrinks by 20% (like the meal is suddenly $80 instead of $100). As we all know, that ain’t the case—the U.S. budget is not going down.

To refer back to the analogy, the meal still costs $100. Bush’s tax cuts did not decrease the overall cost of the meal, they just redistributed how the meal would be paid for. Instead of the existing split (zero to $59) to pay for a $100 meal, the author of this bogus analogy proposes that the same folks kick in a total of only $80 (with the rich paying less than they did before). Okay, but where does the extra $20 come from? In the real world, the money is borrowed—i.e., the deficit increases by that much. And who pays for the deficit? Everybody does—in the same proportion as the new (revised, to the advantage of the rich) percentages—except that if the deficit is pushed out far enough "everybody" includes not just the current diners but their children and grandchildren as well.

Here’s the real analogy: After paying for a bunch of $100 meals, the richest guy (who has been paying $59 of the tab) convinces the restaurant owner to take $80 in cash for the next meal and bill them for the balance. Instead of $59, the rich guy only pays $49 of the $80. When it’s time for the next meal, the bill is $100 plus the $20 still owed for the first one (plus interest). At some point, the restaurant owner will start to get nervous about the rising debt he is owed.

Bush’s tax reductions are not, as this analogy suggests, a way to pass savings back to those who are paying for the meal. They are a means to redistribute the cost of paying for the same priced meal. One can argue whether the current (graduated) tax scheme is fair, but it is dirty pool to argue for tax cuts to the rich by means of a bogus analogy.
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From: Me
To: D*** and errbody else on the list
Date: Friday 3/25/2005, 1:11 PM
Subject: Re: Taxes

First of all, it is not an analogy particular to the Bush tax cuts in the U.S., as this analogy has floated around for quite some time. The point of the analogy is to illustrate the simple fact that the highest income-earners in the country pay the lion's share of taxes, so when they get a cut that in dollar terms is higher than what lower earners receive, it should be put into some perspective. However, if you want to debate how much tax is paid by the different income classes, I would direct you to the following table:

http://www.taxfoundation.org/prtopincometable.html

In it, you'll see that the Top 10% of all income earners in the United States paid 65.73% of taxes in 2002. Surprise! The analogy below IS in fact wrong - the highest payer at the table should be paying $66 instead of $59. And what's more - the Bottom 50% of taxpayers in the United States paid 3.5% of all income taxes in 2002. Not sure what the Bottom 40% pay, but for the purposes of the analogy below, I think we can safely say the Bottom 40% rounds closer to zero than whatever number you have in mind.

The data is taken directly from the IRS, which you are free to call bogus if you'd like. I, however, think you'd just discredit yourself.

Secondly, I am confused regarding your conclusion - is it that, failing spending cuts, the tax revenues which inevitably would have to be increased several years down the line would be done in a proportion different than the current breakdown? If not, the taxes that rich people save now only get recouped by taxing other rich people 10 or 20 years from now. I see no reason in your argument to believe these revenues will be recouped in a manner any different than the way in which it is being done today.

posted by Publius @ 2:58 PM