Of Dinner and Taxes

Suppose that every day, ten men go out for dinner 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 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.” Dinner 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 eat 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 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 pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now pa id $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,” 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 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 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 anymore.

In fact, they might start eating overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph..D
Professor of Economics
University of Georgia

 

(I stole this from my hubby’s blog.  I hope he doesn’t mind!)

The Obama Experiment

Obama Experiment
Given the opportunity I may try this…

Today on my way to lunch with my I passed a homeless guy with a sign that read “Vote Obama, I need the money.”… I laughed.

Once in the restaurant my server had on a “Obama 08” button. Once again I laughed as he had given away his political preference… just imagine the coincidence.

When the bill came I paid cash but decided not to tip the server and explained to him that I was exploring the Obama redistribution of wealth concept. He stood there in disbelief while I told him that I was going to redistribute his tip to someone who I deemed more in need (the homeless guy outside). The server angrily stormed from my sight.

I went outside, gave the homeless guy $10 and told him to thank the server inside as I decided he (the homeless guy) could use the money more than him (the server). The homeless guy was happy… and I felt like a successful politician.

At the end of my rather unscientific redistribution experiment I realized the homeless guy was grateful for the money he did not earn, but the waiter was pretty angry that I gave away the money he did earn even though the recipient clearly needed money more than him.

I guess redistribution of wealth is easier to swallow in concept than in practical application.