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October 4, 2018

No Joke This Time! Solid Tax Cut Logic

Every time a tax cut is announced, there is part of the voters that cry wolf, arguing that it’s always the rich that benefit from tax breaks, never the poor. Maybe it will help to 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 US$ 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 US$ 1, the sixth would pay US$ 3, the seventh US$ 7, the eighth US$ 12, the ninth US$ 18, the tenth man – the richest – would pay US$ 59. 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 (in tax language – a tax cut). “Since you are all such good customers,” he said, “I’m going to reduce the cost of your meal by US$ 20.”

So now dinner for the ten only cost US$ 80.00. The group still wanted to pay their bill the way we pay our taxes. 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 US$ 20 windfall so that everyone would get his “fair share”?

The six men realized that US$ 20 divided by six is US$ 3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would 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 paid nothing, the sixth pitched in US$ 2, the seventh paid US$ 5, the eighth paid US$ 9, the ninth paid US$ 12, leaving the tenth man with a bill of US$ 52 instead of his earlier US$ 59. 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 US$ 20,” declared the sixth man, “but,” pointing to the tenth man, “he got US$ 7!”

“Yeah, that’s right,” exclaimed the fifth man, “I only saved a Dollar… It’s unfair that he got seven times more than me!”. “That’s true!” shouted the seventh man, why should he get US$ 7 back when I got only US$ 2! 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 he 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 a little late what was very important. They were FIFTY-TWO DOLLARS short!! IMAGINE THAT!!!

And that, dear boys and girls, journalists and college instructors, is how the 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. Where would that leave the rest? Unfortunately, most taxing authorities anywhere cannot seem to grasp this rather straightforward logic!

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