A professor of economics, Dr. David R. Kamerschen, at the University of Georgia (as a Gator fan, it nearly pains me to type that), came up with the following story that I’ve summarized below. This is like one of those fables you may have heard when you were a child — the ones that make even the most complex ideas seem very simple. Suppose that every day ten men go out for dinner, and the total bill comes to $100. Suppose, too, they decide to pay the bill in the way we pay our taxes. The following is what would happen. The first four men, the poorest, pay nothing. The fifth man pays a dollar. The sixth pays $3, the seventh pays $7, the eighth pays $12, the ninth pays $18 and the tenth man, the richest, pays $59.
The ten men are happy with the arrangement, but then one day the owner of the restaurant throws them a curveball. “Since you’re all such good customers,” he says, “I’m going to reduce the cost of your daily meals by $20.” Dinner for the ten now costs just $80. Just follow me here. The group still wants to pay their bill the way we pay our taxes, so the first four men are unaffected. They still eat for free, but what about the other six men? The paying customers? How do they divide the $20 windfall so that everyone gets their “fair share?” They realize that $20 divided by six is $3.33, but if they subtract that amount from everybody’s share, the fifth and sixth men would end up being paid to eat their meals, so the restaurant owner suggests it would be fair to reduce each man’s bill by roughly the same amount, and he precedes to work out how much each one should pay.
And so now, the fifth man, like the first four, pays nothing. He gets 100% savings. The sixth man now pays $2 instead of $3 — a 33% savings. The seventh man now pays $5 instead of $7. That’s a 28% savings. The eighth man now pays $9 instead of $12, a 25% savings. The ninth man now pays $14 instead of $18, a 22% savings. And the tenth man now pays $49 instead of his original $59 for a 16% savings.
All six of these men are now better off than they were before and the other four continue to eat for free, but once outside the restaurant, the men begin to compare their savings. “I only got $1 out of the $20,” declares the sixth man. He points to the tenth man. “But he got $10.” “Yeah, that’s right,” claims the fifth man, “and I only saved a dollar, too. It’s unfair that he got ten times more than me.”
“That’s true,” shouts the seventh man. “Why should he get $10 back when I only got $2? The wealthy get all the breaks.”
“Wait a minute,” the first four men yell in unison. “We didn’t get anything at all. This system exploits the poor, clearly.”
The nine men surround the tenth and beat him up. The next night, the tenth man doesn’t show up for dinner, so the nine sit down and eat without him. When it comes time to pay the bill, they all make a disturbing discovery. They don’t have enough money between all of them to cover even half the bill. And that, boys and girls, journalists, politicians, and college professors, is how our tax system really works.
Note: I didn’t include smart business owners on that list, because I know you know. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much and/or attack them for being wealthy, and they may just stop showing up entirely. In fact, they may start eating overseas where the atmosphere is somewhat friendlier. Just a little something to think about the next time you hear the rumblings of the “soak-the-rich” squad.