A Simple Lesson In Economics
Suppose that every day ten men go out for dinner and the bill for all ten comes to $100. If they pay 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 decide to do.
One day the restaurant owner says, "since you are all such good customers, I'm going to reduce the cost of your daily meal by $20." Dinner for the ten will now cost just $80.
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 how should the other six divide the $20 so that everyone gets his fair share?
$20 divided by six is $3.33. But if they subtract that from everybody's share, then the fifth and sixth man would be paid to eat their meal. So the restaurant owner suggests that it would be fair to reduce each man's bill by roughly the same amount, and he proceeds to work out the amounts each should pay. And so:
The fifth man, like the first four, now pays nothing (100% savings).
The sixth now pays $2 instead of $3 (33% savings).
The seventh now pays $5 instead of $7 (28% savings).
The eighth now pays $9 instead of $12 (25% savings).
The ninth now pays $14 instead of $18 (22% savings).
The tenth now pays $49 instead of $59 (16% savings).
Each of the six is better off than before. And the first four continue to eat for free. But once outside the restaurant, the men compare their savings.
"I only got a dollar out of $20," declares the sixth man. He points to the tenth man, "but he got $10!"
"I only saved a lousy dollar too," exclaims the fifth man. "It's unfair that he got ten times more than me."
"Why should he get $10 back when I got only $2?" shouts the seventh man. "The rich get all the breaks!"
"Wait a minute," the first four men yell. "We didn't get anything back at all. The system exploits the poor!"
The nine men beat up the tenth man.
The next night the tenth man doesn't show up for dinner, so the nine sit down and eat without him. But when it comes time to pay the bill, they discover they don't have enough money between all of them for even half of the bill!
And that, my fellow investors, is how our tax system works. The people who pay the highest taxes get the most benefit from any tax reduction. But tax them too much, or attack them for being wealthy, and they just may not show up anymore. In fact, they might find a place where the atmosphere is somewhat friendlier.
Moral of this story: Never forget the fact that money always flows toward where it is treated best!
* * * * *
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 decide to do.
One day the restaurant owner says, "since you are all such good customers, I'm going to reduce the cost of your daily meal by $20." Dinner for the ten will now cost just $80.
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 how should the other six divide the $20 so that everyone gets his fair share?
$20 divided by six is $3.33. But if they subtract that from everybody's share, then the fifth and sixth man would be paid to eat their meal. So the restaurant owner suggests that it would be fair to reduce each man's bill by roughly the same amount, and he proceeds to work out the amounts each should pay. And so:
The fifth man, like the first four, now pays nothing (100% savings).
The sixth now pays $2 instead of $3 (33% savings).
The seventh now pays $5 instead of $7 (28% savings).
The eighth now pays $9 instead of $12 (25% savings).
The ninth now pays $14 instead of $18 (22% savings).
The tenth now pays $49 instead of $59 (16% savings).
Each of the six is better off than before. And the first four continue to eat for free. But once outside the restaurant, the men compare their savings.
"I only got a dollar out of $20," declares the sixth man. He points to the tenth man, "but he got $10!"
"I only saved a lousy dollar too," exclaims the fifth man. "It's unfair that he got ten times more than me."
"Why should he get $10 back when I got only $2?" shouts the seventh man. "The rich get all the breaks!"
"Wait a minute," the first four men yell. "We didn't get anything back at all. The system exploits the poor!"
The nine men beat up the tenth man.
The next night the tenth man doesn't show up for dinner, so the nine sit down and eat without him. But when it comes time to pay the bill, they discover they don't have enough money between all of them for even half of the bill!
And that, my fellow investors, is how our tax system works. The people who pay the highest taxes get the most benefit from any tax reduction. But tax them too much, or attack them for being wealthy, and they just may not show up anymore. In fact, they might find a place where the atmosphere is somewhat friendlier.
Moral of this story: Never forget the fact that money always flows toward where it is treated best!
* * * * *
posted by Bob Moser at
7:48 PM
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