31 October 2008

A Quick Tax Parable

Thanks to Mark S. for sending this one:

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 t he 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=C 2work out the amounts each should pay. 

An d 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 drink 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, "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. 

David R. Kamerschen, Ph.D. 

8 comments:

Latinmassgirl said...

The Obama tax plan is even worse! He wants to give the 4 men who paid no "taxes" a check for $10 each and take MORE money from the 5-10th men!

In reality, every person will be paying more taxes under Obama. He has admitted he will raise gas taxes which equals higher gas prices. He will discontinue the Bush tax cuts which means at least a 5% tax increase for all whom pay income taxes.

And, yes, if the rich are taxed more, they will close their small businesses, putting millions of people out of work. If they don't close their businesses, then they will simply raise the prices to cover their increased tax bill.

The wealthy are also the ones who buy the new cars, houses, yachts, etc. This would affect workers at the car plants, build houses or boats, salesmen, etc.

The former communist Russia is much smarter than our country in that it has a flat tax rate as many other countries do! Everybody pays a small, flat income tax. That is the fairest way, and yes the rich will pay more because 10% of their income is higher.

Anonymous said...

Catholics who are also membes of the Republican Party or the Libertarian Party, or who are what some are now calling "Free Market Fundamentalists," should go and read the major papal encyclicals that spell out the Catholic Church's doctrine on social and economic matters.

I would suggest that everyone should read at least these:

--Rerum Novarum (On the Condition of Labor), by Pope Leo XIII,
May 15, 1891

--Quadragesimo Anno (On the Reconstruction of the Social Order)
by Pope Pius XI, May 15, 1931. This encyclical was written in response to the alarming concentration of wealth and power in the socioeconomic realm. Pius XI called for the re-establishment of a social order based on the principle of subsidiarity. In commemorating the 40th anniversary of Rerum Novarum, this encyclical reaffirms the need for a social order founded on and animated by justice and charity.

Really read these! Get out your highlighter and underline some of the passages that will really surprise you, maybe even shock you!.

Then go and read the words of Jesus Christ in the New Testament.

I dare you to do this! Are you afraid to do it? Are you afraid you might have to give up on, or revise, your right wing Free Market Ideology?

Do you have the courage and the manliness to at least inform yourself about the teachings of Christ's Church on these matters?

Or will you just keep being a follower/fan of heretics and schismatics such as Rush Limbaugh and Newt Gingrich?

After that, I suggest you educate yourself in the fundamental principles of economics, so that you can see that the working poor in America and around the world are actually an indispensible foundation and basis of all the wealth that is created and controlled by the wealthier persons and families.

Even if the working poor paid no taxes at all (which is not the case), they nevertheless by their labor enable the wealthier people to earn great wealth, and so "progressive" taxation is justified, as all informed and fair-minded persons recognize.

The Right Wing promotes the idea that the poor are all shiftless, unproductive bumbs who live off the work of others. Some are. But so are some rich people (e.g., those adult rich people who live off trust funds set up by forebears, and who spend their days lying on beaches drinking pina coladas brought to them by Mexican servants, and spend their evenings doing cocaine in night clubs with Paris Hilton and Matt Damon.).

But most of the poor are WORKING persons, who work two or three jobs, jobs that are miserable, like making beds in hotel rooms, or cleaning toilets in offices, or other degrading, humiliating, servile labor that I bet none of you have ever done.

Jesus Christ gave repeated, severe warnings to the rich, about their greed, selfishness. Go and read the New Testament, and you will see that Jesus Christ was not a right wing Republican.

He wasn't a left wing Democrat either. God does not approve of laziness, or substance abuse.

Jesus was not a Right Winger or a Left Winger. He was GOD, the Almighty--and we must aspire to be like God, feeble creatures though we be.

I know many conservative Catholics see and want to see a powerful alliance between the Catholic Church and Free Market Fundamentalists in the Republicans Party. But sorry, it cannot be. Light and Darkness cannot mix. The Truth and Error cannot unite.

Don't take it from me. Hear the Word of God: "What fellowship can light have with darkness? And what concord hath Christ with Belial? or what part hath he that believeth with an infidel?"
(2 Corinthians 6:14)

Holy Scripture does still trump the teachings of Rush Limbaugh and Sean Hannity, doesn't it? Aren't the teachings of Pope Pius XI more important that the teachings of the Federal Reserve chairman? Isn't the teachings of Jesus Christ more important that those of Adam Smith, Friedrich August von Hayek or Milton Friedman?

Well, if I'm wrong, kindly tell me where I'm wrong. Thank you.

Amen.

Submitted humbly for the glory of God and the salvation of souls.

--Tom

thetimman said...

Tom, I am quite familiar with the encyclicals you mention. I don't think any Catholic worth his salt equates those who are poor with being shiftless. That is a straw argument, in my opinion. Poverty is no crime. There are shiftless people who abuse the system at every socio-economic level.

That being said, I think the tax parable is a fairly enlightening way to picture the current tax debate. I am not calling for a plutocracy.

Latinmassgirl said...

Tom,

Our Country gives more money in charity than any other in the world!!! It is sad that you accuse people who are conservative as being somehow greedy and evil! It is also unchristian to have animosity for rich people, no matter if they worked for it or inherited it.

Our free market economy is what enabled my Italian Immigrant grandpa who grew up extremely POOR (not enough to EAT) to become very wealthy, with only an eighth grade education. He employed many people in his businesses and donated a lot of money to charity, and gave to friends and relatives.

If it wasn't for small business, 85% of Americans would be out of work. Then where would the money come from? There just aren't enough rich people to support everybody.

Socialism, (current Democrat mantra) though it may sound good to some naive people, doesn't work and breeds communism, with evil, sin and greed. Just look at the former Soviet Union, Vietnam, China North Korea & Cuba.

Mr. Basso said...

Thank you, Tom, for an intelligent, passionate, faithful, and well thought commentary on this post.

To call something a parable (on a catholic blog, anyway) would mean that the story is somehow a reflection about the kingdom of God. This is simply a fairy tale that thinly veils economic elitism and contmept for the working class. We must not confuse the moral conservativism that is right and just with economic conservatism that is oppressive and materialist.
So many conservatives are quick to point out that economic charity should be the free choice of the individual and not mandated by the government via taxation.
Why is it wrong to impose morality in regard to economic issues but laudable to impose morality on issues like gay marriage or abortion?

"Much will be required of the person entrusted with much, and still more will be demanded of the person entrusted with more." Luke 12: 48

thetimman said...

I hesitated before attaching the descriptor "parable" to this post. Bad call on my part.

Mostly I thought it was an amusing and concrete example of human nature as it interacts with the workings of the tax code we currently have. I certainly do not claim it as a mandatory economic model for the Kingdom of God. I simply meant "parable" in the ordinary secular dictionary sense.

Latinmassgirl said...

To Mr. Basso & Tom,

How ANYBODY can actually think that a candidate such as Obama who promises to lift all restrictions on abortion, wants gay marriage and believes in restricting our freedom of speech, has the good of Americans in his heart for all other issues, is just beyond me!!!

Most conservatives believe that instead of the government confiscating people's earnings, they should TRUST us to voluntarily donate to privately owned charities. Most private charities actually help the poor, without the corruption and bureaucracy of government agencies.

To equate excessive taxation with helping others is just not accurate. When Reagan cut the top percent of income taxes, and other taxes, the tax revenue actually doubled because of the increased jobs and spending that resulted!

Liberals are snobbish in thinking that all poor people need or even want the government's help.

I have a brother whom is middle class now, because he works two full time jobs. He lived below poverty line for years. It wasn't acceptable to him, and now he is middle class! He is happy that he provides for his family, without big brother government's "help".

In our country, the opportunities are abundant for people to work their way up from the bottom. The poor people of yesterday often become the middle class of today after working several years. Sometimes, they become the wealthy, as my immigrant grandpa.

I know I'm speaking for other conservatives when I say that we believe in helping others and give generously to charity. (Unlike stingy, millionaires Joe Biden, and Al Gore). We also believe in the generosity and goodness of the American people.

We just don't believe in the liberal's call for SOCIALISM, because it has been proven to fail, every time it is tried!

Instead government should butt out of our lives as much as possible because when government gets too big, it becomes too powerful. Then you can kiss your freedoms, especially of religion good-bye. As demonstrated by "legislating from the bench" liberal judges, more of whom Obama promises to confirm.

Latinmassgirl said...

TOM,

I am extremely offended that you say good, manual jobs such as housekeeping are miserable and servile! It is liberals like you, whom look down your noses on others that do manual jobs, assuming they hate their job, but are too stupid to get "better" jobs.

My husband and I proudly worked one of those jobs you called "servile" as a second job for 15 years, so we could afford a house for our family. We actually had 3 bathrooms to clean, along with over 3,000 square feet of space. It NEVER occurred to us that we were doing MISERABLE, horrible work as you think. We were just providing for our family, as all people do whom work, no matter what the job!

Currently, I have been considering "cleaning toilets" again because we need the money. I actually can get another job, but the pay is good, and I prefer doing my job and then leaving it at work.

No, you obviously didn't ever work a manual labor job, or you wouldn't be putting it down the way you just did!

All of you Americans out there who ever cleaned toilets for a living, just ignore the liberal snobs, we know we can hold our heads up with pride!!!!