This little bit has been floating about through e-mail and other places for some time, but since I’m suffering a bout of insomnia, I figure it’s worth posting. Anyone who wants to know why "soaking the rich" 1) doesn’t work and 2) doesn’t make sense would do well to read it.
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, and 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 (in tax language a tax cut).
"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 $80.00.
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 $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 who 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, a little late what was very important. They were FIFTY-TWO DOLLARS short of paying the bill! Imagine that!
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.
Where would that leave the rest? Unfortunately, most taxing authorities anywhere cannot seem to grasp this rather straightforward logic!
Well known financial writer Andrew Tobias discredited this one a while ago:
03/01/20 That Idiotic Thing about the 10 Men Going to a $100 Dinner
03/01/24 Your Thoughts on the Idiotic Thing about the 10 Men and the $100 Dinner
03/01/27 More Thoughts about the 10 Men and the $100 Dinner
http://www.andrewtobias.com/columns.html
A bigger crock of shit I have never come across, at least in recent memory. Before I even finished the first sentence, the analogy was already discredited since it alleges that four out of 10 Americans don’t pay any taxes. As you soon find out in whatever entry-level job you end up coming straight out of college, the taxman will still cometh no matter how low (within reason) your income is. More importantly, however, it harkens back to the 1970’s (or more accurately, the 1950’s), long ago eras when the rich actually were soaked by the tax policy. Meanwhile, here in the 21st century, Warren Buffett points out that he and his secretary already pay the same percentage of income in taxes, and after the latest round of budget-busting tax cuts, his secretary’s likely to pay ten times the percentage of income in taxes as she is.
You’re correct that “soaking the rich” will ultimately be effective, but in order to make your obsolete analogy stick, you’ll have to build a time machine to travel to an era where it would actually apply to real life. Those of us who haven’t warped into the delusional dimension of modern-day conservatism are aware that those really being “soaked” in taxes are the middle class and smokers (mostly lower class).
You’re correct that everyone pays taxes of some kind, but the article is correct that 4 out of 10 Americans do not pay the federal income tax. (In fact the effective tax percentage for the lowest quintile of Americans was negative.) The top 20% of American taxpayers pay 79% of US taxes and the top 5% pay about 57%.
The problem with taxation is that the "rich" make up a large number of Americans. In order to be in the 20% of the US tax bracket you only have to make $131,000 prior to taxes. As I’ve said, there are a lot of people who make $131,000 who are struggling to pay their bills, put their kids through school, and still have enough enough to invest for the future.
In order to be in the top 10% you need to make only $188,000 in pre-tax income. Now while I would love to make $188,000 (Hell, I’d love just half that!) most of those people still aren’t filthy rich. A number of those 11.9 million people are the people who employ millions more in small business. (Small business accounts for fully half of all jobs in America.) It’s easy to say that the top 10% should pay more in taxes, but when you soak them, you hurt the people whose investments, whose risks, and whose hard work powers this economy.
It’s easy to talk about the "rich" as being some plutocrats and millionaires, but the numbers speak differently. In fact, to enter the elite of the top 1% of wage earners in the US tax system, you don’t even have to be a millionaire – entrance to that club requires $719,000. Granted, to you and I that’s an obscene amount of money, but very few of those inherited that amount of money. Most of them earned it through their hard work and their willingness to invest and take risks. Without those who are willing to take risks, invest, and drive the economy, the US would not have the 1% economy in the world.
Last year, I made $15,000 and still paid federal income taxes. I got a small refund, but was not refunded all of the money I paid in taxes. Does that mean that 4 in 10 Americans (the “lucky duckies” not paying taxes)are making less than $15,000 a year? If that’s true, then our economy has alot bigger economic problems than tax policy.
You also neglect to mention that after all the writeoffs, giveaways and gimmes, the group that pays the lowest overall taxes are the wealthiest 10%. Figures are manipulated to suggest an artificially oppressive tax burden on those who seem to have no problem increasing their incomes faster than any other group of Americans despite the steel-toed jack-boot of taxation being pressed into their necks.
Anyone who makes (or rather nets) more than $100,000 a year has absolutely no excuse for not making ends meet. It’s rather amusing to see an unemployed recent college graduate whose heart bleeds like a waterfall for people making more than $100,000 a year while arguing that poor people with kids making less than $26,000 a year shouldn’t even get a $400 bone to pick at in the latest tax giveaway.
Another fallacy is that government policy should serve as a protectionist blanket for small business. Small businesses are a major component of the American economy, but they also come and go faster than chameleons and 80’s bands that sing about them. Obviously, small businesses that are either poorly run or don’t have a significant enough customer base to be successful will end up faltering. Too often though, their failure is blamed on government by anti-tax ideologues who see the opportunity to rally the public against taxation by suggesting that it’s taxation, rather than the marketplace, that is forcing ma and pa to close the general store. In most cases, however, that general store will be quickly replaced by another small business that is not deterred from existing by allegedly oppressive tax rates.
I also dispute the notion that millionaires are almost all the product of hard work. There are plenty of cases where that is the case, but by and large, the strongest factor that determines one’s class status as adults is their class status as children. Granted, there is usually (at least up to this point) a certain degree of upward mobility, but I don’t accept the logic that most of the richest 1% today were not among the richest 1% (or at least 5%) when they were in diapers.
First of all, if you’re paying federal income taxes making only $15,000/year then you’re either in a very small minority or have a very bad tax preparer. The vast majority of taxpayers making under $26,000/year pay no federal income taxes, and most of them receieve more than they paid under the Earned Income Tax Credit.
Well there’s that vaunted liberal compassion – "Small businesses? Screw ’em!". Of course, without small business half of the country would be unemployed. To simply dismiss them is both callous and unwise. Because I work with small business, I see firsthand how small business have to put up with thousands of taxes and regulations that keep them from expanding their businesses and hiring more people.
Furthermore, I know people who make $100,000 who are smart and hard-working but still have trouble paying the bills. As I said, if you have college-age children, a medical condition, live in an urban area, and are trying to invest for the future, $100,000 is hardly rich. Moreover, I have no animosity to those people who work hard, invest well, and earn their money. Hell, I want to be one of them in the next few years. Of course, that’s the fundamental difference between liberals and conservatives in America today. Conservatives want to enshrine success, while liberals want to continue to play the same "greed" card that’s fueled reactionary movements throughout history.
Most people I know make less than $26,000 a year….and nearly all pay federal income taxes. Maybe you should get your data from someplace other than Chamber of Commerce-style interest groups who have a vested interest in martyrizing themselves as the gravy train for a nation of freeloaders, when real-world statistics show the exact opposite is now happening. Furthermore, your misinformation about the federal income tax burden indicates that you should probably spend a little more time getting to know these people and understanding their problems, and a little less crying rivers of tears for those making $100,000 a year being “ground into dust” by taxation. Who knows, you may even begin to sympathize with the plight of the underclass. But then again, your gratuitous hostility towards people whose income is less than your own is so entrenched, it’ll be next to impossible for you to view them as anything other than a parasite.
Furthermore, you’re responding out of pure emotional and zero substance to my comments on big business. I clearly was not advocating the “screw ’em” approach that people like yourself apply to the underclass. I was merely saying that the small business economy is a constantly moving target and one whose success or failure is driven by the market for the goods or services they peddle. There are more small businesses in America than ever before and the industry as a whole seems to be doing just fine even with the crosses of regulations and taxes to carry on their backs. I bet the blue-collar guy can’t say the same about manufacturing jobs in America. Oh that’s right. You don’t care about those guys. I forgot.
My figures are from the Congressional Budget Office and the Internal Revenue Service.
You hit on the fundamental difference between liberals and conservatives. Liberalism is fundamentally a doctrine of envy that sees anyone who is remotely successful (and doesn’t pay off the Democratic Party with campaign contributions) as being unworthy of their wealth. If I went around viewing anyone who made more than I as a "parasite" I’d have to be hostile to 80% of the population.
For all your complaining about how conservatism is about "returning to the 19th Century" you’re lines of argumentation are straight out of the Marxist playbook of class warfare and envy that has changed little since the 1800s. Thankfully the rest of the world has moved on to free markets and economic freedom.
The world has moved on to free markets? Could have fooled my political science textbooks. The only functional free market economies today are isolated enclaves with specialized high-tech economies. Hong Kong is the largest one and Singapore is the second largest. Beyond that, irrelevant economies like Luxembourg and the Cayman Islands are the closest thing to a utopia for free-market ideologues that exists here on planet Earth…and none of them has a diversified enough economy to be an accurate barometer of what any of the civilized economies of the world would experience if they attempted to mimic the economic structures of these one-horse economies.
To whatever extent the world is returning to the free market dogma of centuries past, the lesson is sure to be learned by its new generation of practitioners that such a system ensuring reckless maldistribution of resources is not compatible with human nature.
I have to thank you for your other comments here, because the surest sign of a conservative debater’s defeat is when he or she has to play the Marxist or Communist card against his debate opponent. I’ll credit you with lasting far longer than most conservatives do before playing that card, but ultimately even the best (and I use the term loosely) of the conservative ideologues succumb to the trend started more than 50 years ago by their mentor Joseph McCarthy. It’s evident that today’s conservatives view anything less than unwavering adulation towards wealthy Americans as being “class warfare”. Anyone who doesn’t vocally submit to the perceived entitlement of America’s upper-income households to control more and more and more of the nation’s Gross Domestic Product is guilty of class envy in the eyes of conservatives in 2003.
I, for one, feel I harbor very little class envy. I really have little desire to be wealthy myself, and am perfectly fine with people accumulating a fortune. I’d like you to point to a single quote in this thread where I display some sort of resentment towards wealthy people. My only request is that those fortunate enough to succeed within a nation and a system that enabled their upward mobility contribute back to the nation and the system that enabled their upward mobility. Even under the allegedly oppressive tax rates of the Clinton years, taxation failed to make wealthy people less wealthy. The horn you are blowing into simply isn’t making any music.
Furthermore, I do not sympathize with people making more than $100,000 a year who can’t pay their bills. Your basis for justifying shedding tears for this group is built upon need to “pay for their homes” and “college tuition for their kids.” These are shared desires among the 90% of American families whose income is lower than $100,000 per year, but who have to accomplish these ends with smaller paychecks.
Ultimately, it’s an exercise in futility to penetrate your narrow worldview. With all of the suffering of people across the globe and increasingly in the United States, your grief is reserved for the wealthiest people in the wealthiest nation of the world who just can’t survive on $100,000 a year. Hopefully, some time in the real world will help you rise above your textbook-style ideology and realize there is a human toll to the ideas you embrace. Your rhetoric right now shows that despite your intelligence, you are still extremely immature.