Why Tax Breaks for the Rich are Good
With the talk or potential tax cuts in the US, I thought you might find this enlightening:
"Understanding Tax Cuts"
by: David R. Kamerschen, Ph.DSometimes politicians, journalists and the liberal left exclaim; "It's just a
tax cut for the rich!" and it is just accepted to be fact.But what does that really mean?Just in case you are not completely clear on this issue, I hope the following
will help. Please read it carefully.Let's put tax cuts in terms everyone can understand.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 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 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.
