The "Truth" about Taxes

[ProfessorPlum]

I got this chain email not too long ago. It was so jaw-droppingly stupid I had to write back about it.

The Truth about Taxes

by Anonymous

Let's 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 $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 $7;
The eighth $12;
The ninth $18.
The tenth man-the richest-would pay $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. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20."So now dinner for the ten only cost $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-the paying customers? How could they divvy up the $20 windfall so that everyone would get his "fair share?" The six men 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 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 $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of his earlier $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 $20," declared the sixth man. He pointed to the tenth. "But he got $7!" "Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got seven times more than me!" "That's true!" shouted the seventh man. "Why should he get $7 back when I got only $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 something important. They were $52 short! And that, 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.

Unfortunately, Liberals cannot grasp this straight-forward logic!

That poor 10th man!! I think we should have a contest and try to find all the fallacies in this analogy (and there are plenty)! I'll try to give a start here.

First of all, let's assume that the numbers given for proportion of total taxes paid are correct, though there is no reason to assume that they are. Every study I've seen shows that the rich are not taxed anywhere near proportionally to their income. That means that in this little parable world, that for every $100 dollars these men have in income, that the 10th man gets $60 or more, probably closer to $70. Anyway, this guy is totally loaded compared to the other 9.

Second, let's assume that the "dinner" is meant to symbolize services and benefits derived from the government - the other parts of these men's existence is in the private sector, where their lives will reflect their actual wealth, etc. So, some of them are dressed in rags, and a few of them are probably sick with consumption and homeless. For the poorest, the dinner may be their only chance to get inside out of the weather, and the only opportunity to eat. The 10th man, of course, lives in a fantastic mansion, surrounded by his bodyguards and servants, living a lavish and wasteful lifestyle.

Back to dinner. There is $100 worth of food served every night. The 10th man gets foie gras and osso busco, truffles, caviar, a bottle of expensive wine to himself, and sweet delicacies for dessert. He eats every crumb and drinks every drop. And licks the plates. The waitstaff dote on his every comfort. The other diners eat more modestly - a plate of liver and onions and a beer here, a nice sandwich and soda there - on down the line, until you come to where the first four are eating celery sticks, some bark, ice water, maybe a little gravel for roughage. Because, make no mistake about it, the rich get much more benefit from the government than the poor do. For example, some of our tax money goes to regulate the airline industry for safety. If you're too poor to ever take a plane, you don't ever benefit from that. Our taxes build roads, but if you are too poor to own a car, that doesn't benefit you. Our taxes fund the FDIC, meaning up to $100,000 of our savings accounts are federally insured, so the richer you are, the more benefit you get from that. Tax-funded police defend the property of the rich, and our tax-funded military defends the interests of the wealthy overseas. And the freeloading poor? Sometimes they get some money to help pay their fuel bills in the winter (not this winter, though). Sometimes help buying food. Sometimes reduced rent. It is nothing compared to the way the interests of the rich are protected and pampered.

Now, back to the story. The next development is that the restaurateur cuts $20 off their bill. This is a false analogy to the way tax cuts work, so let's clear this up. First of all, mainly because of the 10th man's wine, the restaurant usually serves more than $100 dollars worth of food each night, and has been taking a steady loss. But he is now willing to feed them for $80. Maybe #10 has been complaining about his bill, and has bribed the waiters to agree with him. Maybe the owner is hoping to die before his debts catch up with him, and leave the mess to his son. Most likely he is borrowing money from man #10 to make up the difference, which he will have to pay back with interest. In any case, he has to provide the same meal he did before for a much lower cost, meaning either he will have to go into much more debt much more quickly (man #10, the creditor, doesn't mind this a bit), or he will have to cut back. Maybe he will fire the maitre'd. Maybe the sandwiches will get a bit thin. But the tenth man will most assuredly not notice any change in his menu. He would complain most bitterly if he did, and blame it on the celery at the other end of the table.

That the 10th man expects any benefit from the tax break at all is a little hard to believe.

Then the tale crosses the line from profanity to absurdity. The 10th man gets beat up by the other nine. If this is an allusion to some civil uprising in the US against the rich, I've never heard of such a thing. If it is just the other nine being angry at man #10 for being rapacious and self-serving, then my heart breaks for him. And what does "not showing up for dinner" mean? If it means that the rich will stop taking any benefits from the government, then good on them. But unless the tenth man moves clear to the next town, you can bet he will continue to show up faithfully for his dinner. He might refuse to pay, but he will be there for the food.

Those dumb Libruls just don't get it.

Now, I don't fall into the fallacy of rich people all being evil or poor people being all noble and humble, etc. But I wish the rich would stop feeling so damn sorry for themselves that they have to pay a few taxes, and shut up already. And I really really wish that they would stop trying to bribe all of our public servants to agree to change all of the groundrules and laws in their favor. If they could pay happily for their wonderful dinners, maybe buy a little something extra for the other end of the table because it is the right thing to do, then that would be a story worth telling.



On edit, fixed link.

[Bill McBlueState]

1. celery sticks and gravel

That's about right these days.

I like what you wrote. It gets the point across, and you use quantitative arguments when necessary, while the original piece is so full of numbers I doubt any right-winger could follow it. The best part is when you write about how the 10th man gets way more out of the $100 meal than his $59 would suggest.

[zbdent]

14. You were lucky to have gravel!

(whoa - flashback to old Monty Python skit . . .)

[BigYawn]

2. To be blunt, I am envious of those making over $100k/year, they deserve

to be squeezed for taxes. I think only the richest 10%
should pay all taxes. Let them pay me so I can take it easy.

[ProfessorGAC]

3. Um! That's Sort Of Their Point Of View

Everyone else should pay? That seems like what a conservative would say.
The Professor

[patcox2]

8. "Let them pay me so I can take it easy."

Thats an interesting remark. Thats the kind of thing that conservatives would claim a a liberal would say, not the kind of thing a liberal would ever really say.

[ProfessorGAC]

10. I Sort Of Felt That Way, Too

A little misdirection?
The Professor

[ProfessorPlum]

12. Maybe BigYawn was presenting

this "argument" as a parody of what a conservative would think a liberal would say.

Too convoluted?

[Orrex]

4. No one seriously suggests that *only* the rich should pay

But when (hypothetically) ~3% of the population controls ~90% of the wealth, then a tax rate of 90% doesn't really seem inappropriate to me.

Here's a flat tax proposal: All holdings and annual income over $500,000 per year are taxed at a flat rate of 99%.

I'd bet that such a scheme would balance even Dubya's budget in just a few years.

[ProfessorPlum]

5. Yes, that is exactly what I'm suggesting /sarcasm

Dollar for dollar, the rich get an incredibly sweet deal for their taxes in this country. The poor pay about the same overall percentage (about 14-18%, most studies show) in TOTAL taxes (not just income taxes, as the wealthy always use for their arguments).

It's one thing to bitch about having to pay taxes, but for the wealthy to try to game the system to reduce them (remember, every dollar not paid by a wealthy person is a dollar which MUST be paid by someone else - usually you and me), is morally despicable, in my opinion.

[BigYawn]

9. In fairness to all, a flat tax makes the most sense with first $50,000

income exempted. so if the flat tax rate was 20%,
you earned $49,999, you pay nothing.

If you earned $70,000 you would pay $4000.

If you earned a million, you would pay $190,000.

Seems fair and simple to me.

[ProfessorPlum]

11. It's certainly "simple"

It's also unfortunately a bit like what our system is set up for now. The graphic below is from a NYT article froom 2003 which is now in their archives, but it shows that overall, we do essentially have a flat tax system, if you include payroll taxes, property taxes, etc.



The article is commented on here.

The inherent problem with this kind of tax setup is that while the top 1/5 are paying about half of the revenue (total the "total gov. tax receipts" column and you get about $41,000), they get much, much more for their taxes than anyone in the lower levels. And what the lower levels have, they are constantly trying to take away. (Social Security, anyone?)

On edit: found a better source for the chart.

[ProfessorPlum]

16. Here are the % of total income vs. % of total tax revenue

for the 5 quintiles shown:

Bottom 20%: 3.3% 3.5%
Second 20%: 8.6% 6.9%
Middle 20%: 15.0% 13.6%
Fourth 20%: 24.0% 23.8%
Fifth 20%: 49.1% 52.3%

So, it seems that the bottom 20% and the top 20% are paying ever so slightly more than a flat tax on their income in total taxes.

In this country we already have a flat tax.

[Ready4Change]

6. I have 3 corrections to your re-write.

I totally agree with your re-write, but would change 3 things.

First, regarding the meal (tax funded government services) costing more than the original $100, I'd agree, but the creditor isn't the rich 10th man. The creditor is the chinese restaurant around the corner that at some point will decide to deny this restaurant any more credit.

Second, when the 9 other diners get upset and go to beat up the 10th, then find his mansion is in a gated community with tight security. They decide they are pissed off enought to risk attacking him anyway. Some are mauled by attack dogs, some tasered, some shot by guards, and all survivors are shipped off to Gitmo as terrorists and traitors against the restaurant.

Then, I would add, with all the other 9 diners incarcerated or dead, the restaurant shuts down. There's no longer anyone available to work as wait staff, maitre'ds, fix the kitchen equipment, or the hundred of other things that can't be done by purchasing things from the chinese restaurant around the corner. The 10th diner finds himself fixing a dinner of oatmeal in his echoing mansion as the heat fails and the electricity is cut off.

He is the last man standing in the town, but it is a hollow victory.

[ProfessorPlum]

7. Excellent points

Especially about the creditors.

What gets me about the rich trying their damnedest to turn this country into a feudalistic society, is that their "reward" is having to live in a feudalistic society. Hooray! What a hollow victory that will be, indeed. To be wealthy, but surrounded by their fellow citizens in poverty, sickness, disease, totally dependent on the largess of the lords of the manor. Who wants a society like that?

[EstimatedProphet]

13. They would want a society like that

The thing that most people don't understand about excessive wealth is the power it represents. The amount of power that the wealthy have compared to the average citizen is astounding. however, there comes a point when extra money will only do so much to increase someone's power, and it becomes meaningless. So, why wouldn't they want a return to feudalism? They would literally own fellow citizens. they would be like gods to the average person. That has to be tempting to the super-wealthy, since power is really what they desire after all.

[ProfessorPlum]

22. I guess

that is the difference between your average human and whatever these creatures are who advocate for such a world.

[JHB]

17. It's not exactly the most familiar analogy...

...but having an education in physics I tend to compare it to, well, physics.

For most people a "simple" system would work, like billiard-ball Newtonian physics. But concentrations of wealth and power warp the politico-economic continuum -- "the rules", the "level playing field", all the familiar markers of fairness -- the way concentrations of mass warp the space-time continuum. The reality is that "simple and fair" calculations of what the very wealthy should pay start looking like those decribing Relativity (http://en.wikipedia.org/wiki/Lorentz_transformations)

It may seem strange and unfamiliar, but unless you account for it it'l' never be right.

[ProfessorPlum]

21. I like it

and the more and more wealth you accumulate the more warped everything around you is.

[tjwash]

15. Great, more lies and divisive bullshit from the neo-cons...

...and they dare to call us libs a bunch of elitist scum engaging in class warfare. I guess the richest 1 percent of Americans holding 34 percent of our nations wealth isn't enough, they want us to thank these rich SOB's for it as well. Meanwhile, the net worth of the bottom 40 percent of households has dropped by 40 percent.

There was an article in the Los Angeles Times, in October of 2000 showing IRS statistics revealing that average after-tax income rose nine times faster for those at the very top of the income spectrum than for most other Americans. The IRS data indicated that the average after-tax income of the top 1 percent of tax filers jumped $121,000 -- or 31 percent -- just between 1995 and 1997, after adjusting for inflation. That compared to an increase of 3.4 percent in the average after-tax income of the bottom 90 percent of tax filers. The $121,000 average income gain enjoyed by the top 1 percent of tax filers during this period was several times the total income of the typical middle-class household.


:eyes:

[sweetheart]

18. very funny that

10 men get to dinner.
10 women and 10 babies don't, don't vote, don't have property and
arn't part of their world. 10 dead people are walked over
10 AID's patients die
10 slaves don't have self liberty

And of the 10 MEN at dinner, all of the 9 work for the master 10.
And none of them dare disagree or lose thier job, so they all
eat macdonalds hamburgers and fries, whilst number 10 dines on
the blood of third world children.

[radwriter0555]

19. I think it's great that the wealthiest pay the most in taxes and support

more of the government with their money. That is as it should be. Those with the most should share the most with those who have the least.

[ProfessorPlum]

20. the damnedest part of it

is that the most wealthy don't even want to pay for the fantastic benefits they get from the government FOR THEMSELVES, let alone what their taxes do as far as creating a better society for everyone else. It's the selfish greed that really gets to me.

[ProfessorPlum]

23. self-kick

but last one - have a great weekend everybody,

PP

[Tactical Progressive]

24. Profoundly intellectually-corrupt Republican propaganda

What this sniveling piece of dishonesty is doing is trying to put total outlays into a percentage context.

First off, as an aside, the 59% is no doubt representative of some marginal tax rate, which is a meaningless construction but they use it because it makes them seem like they are so burdened, which their victimized mentality just loves. The top tax rate is now I believe 35% federal; the upper middle-class person, in today's America a millionaire, probably pays around 30%. Compare that to the roughly 20% which that middle-quintile person pays. That's 60:40, and even that difference is heavily undercut by both regressive taxes like FICA and sales tax, and the low rates on capital gains, which together percentage-wise reduce the relative tax rate burdens between the well-off and the poor down to little more than parity. Again, that's just an aside, but their marginal-tax-rate dishonesty pisses me off so I had to mention it.

The real lie in this piece is that it tries to present absolute tax outlays, which exist in reality relative to income, in the context of a familiar dinner setting where actual dollar outlays are compared, not percentage outlays. To understand what this means, realize that even if there were a completely flat tax, say everyone paying 20%, which I know is absurd anyway, but pretend - even that would not change the disparities in this twisted wingnut fairy-tale:

You have an upper middle-class 'Republican' hero now, making $350k a year with $3 million in the bank. He gets his $350k in income, plus let's say 5% in interest, dividends and home appreciation (which in reality of course is alot less than he really gets, but just for the sake of argument it's only 5%). That's 5% of $3 million or $150k, for a total of $500k coming in. He pays 20% flat tax on that - $100k. The lower middle-class 'moocher' makes $25k with almost nothing in the bank and probably debt if anything. He pays 20% flat tax on that - $5k.

Inotherwords, even with a flat tax, the rich guy is paying 20x as much as the poor guy in absolute dollar amount.

Which, when you apply it to this dinner scenario means that the rich guy still puts in $60 and the poor guy still puts in $3, even under a flat tax. The incredible dishonesty of this dinner-fairness allegory was concocted to do just that; compare absolute outlays in percentage terms. You can see it clearly when you re-do it under a flat tax - nothing changes; they are still being taken advantage of.

In short, EVEN A FLAT TAX ISN'T FAIR TO THEM. Contrary to what they wanted it to show, what this little story actually shows is that they think fairness would be the poor guy pays $5k on his $25k income and the rich guy pays $5k on his $500k income. Then they all pay the same for dinner. In fact, that's the only way they all pay the same for dinner. That's what they consider fair.

This pathetic fable uncovers their greed-as-morality mindset when you flat-tax it out, using their own dollars-into-percentages ploy. They are the put-upon victims if they have to pay one cent more than the poorest person has to pay, in absolute dollars. Not one-percent more in percentage terms; one cent more in dollar terms. That's unfair to them.