I have a post that I am working on where I talk about my own experiences. Hopefully it should be completed tomorrow.
Tax Cuts for the “Rich” (Ron Allen)
I was having lunch at PJ’s with one of my favorite clients last week, and the conversation turned to the Campbell government’s recent round of tax cuts. “I’m opposed to those tax cuts,” the retired college instructor declared, “because they benefit the rich. The rich get much more money back than ordinary taxpayers like you and I, and that’s not fair.”
“But the rich pay more in the first place,” I argued, “so it stands to reason that they’d get more money back.” I could tell that my friend was unimpressed by this meager argument. Even college instructors are a prisoner of the myth that the “rich” somehow get a free ride in Canada. Nothing could be further from the truth. So, let’s put tax cuts in terms everyone can understand.
Suppose that every day 10 men go to PJ’s for dinner. The bill for all ten comes to $100. If it were paid the way we pay our taxes, the first four men 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.
The 10 men ate dinner in the restaurant every day and seemed quite happy with the arrangement until 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.” Now dinner for 10 costs only $80.
The first four are unaffected. They still eat for free. Can you figure out how to divvy up the $20 savings among the remaining six so that everyone gets his fair share? The men realize that $20 divided by 6 is $3.33, but if they subtract that from everybody’s share, then the fifth man and the sixth man would end up being paid to eat their meal. 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. Here’s what he came up with . . .
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 $59. Outside the restaurant, the men began to compare their savings.
“I only got a dollar out the $20,” declared the sixth man. Pointing to the tenth, he said, “And 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 and college instructors, is how Canada’s 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. There are lots of good restaurants in Switzerland and the Caribbean. (source)
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November 15th, 2006 at 11:20 am
cute. Can you break that down for me in regard to American taxpayers.
November 15th, 2006 at 12:20 pm
The same scenario would apply for American taxpayers.
November 15th, 2006 at 8:23 pm
The rich person benefits from tax shelters before he pays taxes. So in the restaurant he has the first three or four courses of the meal for free. If more of the income can be sheltered, the rich person might become theoretically “poor” and pay nothing.
November 16th, 2006 at 12:34 am
UPDATED COMMENT
Trust me, this (meaning what you have just mentioned) does not apply to all that are classified or seen as “rich”.
November 19th, 2006 at 11:04 am
hmm… what about the part where less taxes means less food, so the poor continue to go hungry without this deal, but the rich guy could go somewhere else where he’ll get more food and not haveto care about his fellow starving brothers??
On the other hand.. its not like the money actually goes to food and people’s real needs anyway…
September 4th, 2008 at 9:26 pm
REMINDS ME OF
http://witnessed.wordpress.com/2008/09/02/the-poor-widow-jesus-refers-too/
October 15th, 2008 at 8:16 pm
If you are suggesting that the wealthy will leave the country in droves if we repeal the Bush tax cuts, that is ludicrous. First of all, where would they go? Almost every other Western country has socialized health care which means what…Higher taxes.
I suppose they could migrate to South America and live like royalty, but they wouldn’t. The wealthy don’t want to retire and stick with what they have. They need a heavily capitalist system to milk as much money out of the pockets of consumers as they can. It is their addiction. Greed.
January 13th, 2009 at 2:29 pm
This cute story is offensive on several counts. First of all the idea that the reigning adminstration owns the country and is empowered to treat it as their own business is both horrid and too close to the apparent truth under the Bush administration. (I don’t know if the Canadian leadership is equally prone to a disproportionate sense of entitlement.)
Another offense against the truth is the idea that the citizens would not take into account the disproportionate level of non-financial burdens that the poor bear. Consider that while the rich pay for our wars abroad, it is the poor who bear most of the burden of sacrificing their sons, daughters, husbands, wives, and friends. In a democratic society everyone bears some cost to maintain the infrastructure that makes the peace and prosperity possible.
The financial burden is only one of the costs and the rich are rightly taxed more heavily because the benefits they gain from infrastructures like the SEC, the banking system, and others is heavily in their favor. Taxes, along with certain kinds of government service, are the membership dues we all pay to enjoy peace and prosperity.
I re-wrote this little conservative fable with a more liberalized slant in a blog post last year, (though I hope that the points of critique above transcend ideological lines):
http://blog.attitutor.com/2006/06/tax-math-reframed.html
February 26th, 2009 at 7:08 pm
..your logic works except for one thing..there are a 1,000 people paying only $1 dolar while there are only 10 paying $59 ! Proportionment is everything!
grantman
March 8th, 2009 at 5:29 am
What a load of rubbish, I can’t believe this Limbaugh-like simplistic misleading drivel is still doing the rounds.
The bit you entirely miss off – which is the whole point – is what’s left after they’ve paid the bill: the four who paid nothing, still have nothing, the many thousands who paid a bit still have a bit, the one rich guy who paid a lot still has a lot.
The Bush system of charging $80 for a $100 meal and getting the Chinese restaurant over the road to pay the rest was hardly surefooted economics. We’ll see just how much that really costs when the Chinese start to play hardball.
The problem in the world economy today is not a shortage of supply – lowering taxes on those most likely to create jobs won’t work. No business person will create a job unless they’re sure they can sell their products – you only employ people when you can use them to help your business succeed. The problem at the moment is a dearth of demand – no one’s buying anything! The solution must be to boost demand which will in turn lead to greater business confidence and revenue which will lead to jobs. You boost demand by targeting money at those most likely to spend it: the poor.
The problem with Limbaugh and other stupid people is that they only have one solution, so apply it to everything. Cutting taxes and relaxing regulation worked in the 80s because that was a problem of stiffled supply-side, no it’s different, it needs a different solution.
March 14th, 2009 at 7:10 pm
exe: The rich person has tax shelters? Must not be very good ones, they’re still paying $59.00! Wake up, dude, far too many people pay no federal income taxes at all and for too many people not only pay no federal income taxes, they receive ‘tax refunds’ due to ridiculous tax credits. Get your facts straight. And stop hain’ on rich folks – they’re carrying your share of the burden.
And Zhisou: I can’t even begin to excavate you parallel universe. Get your meds in order…
March 16th, 2009 at 4:15 pm
Our government is printing money that does not exist for “frisbee golf” parks and “leashless” dog walks. Meanwhile homes are being foreclosed on daily. Do you realize that in the President’s so called stimulus bill spent $18,000 per taxpayer without giving 1$ to the taxpayer? While I work for myself and have not paid taxes this year, I will next month and it will be a hard thing to do given the gross mismanagement at the local, sate and federal levels when it comes to our tax money. I don’t mind paying taxes when I know the money is being used to do the things government should do. My problem is with government inventing new numbers (like trillion) just to spend on nonsense. Okay, ten billion dollars out of the 800 billion dollars to help study the mating rituals of the North Dakotan Shaved Weasel is needed to stimulate the economy. Somebody will still have to pay for that and all the rest of the insane Washington D.C. spending and the top 5 percent of Americans don’t make 800 billion dollars in 5 years much less two. For our politicians to try and tell you that raising taxes on the rich or smokers will pay off their spending spree amounts to nothing more than selling you snake oil. The plan to soak up the rich is great. They will be happy to pay for all sorts of new social programs so the North Dakotan Shaved Weasel can have free health care and upgrades to digital T.V. so they can watch frisbee golf 24 hours a day. Until the rich either run out of money or leave to go somewhere cheaper. Ask the state of California what happens to the population when it is over-taxed. So if the rich leave, who gets the tax then? The not as rich of course. So we just keep knocking out rungs off the social ladder until eventually we get to your rung and naturally it will magically stop there right? What happens if all the taxpayers leave? Who will pay for the free government handouts then? Just something to think about: I never got a job from a guy living under a bridge. This is a case where we should remember the “Golden rule”: do to others as you would have them do to you. Instead we have the “American golden rule”: If someone has more gold than me, they should pay for my health care!!!! (Note No North Dakotan Shaved Weasels were harmed in the making of this post)
March 16th, 2009 at 4:26 pm
To the white cat 6 posts up, all the other western nations can afford socialized health care because we (the United States taxpayers) pay for their defense through NATO and the UN. If the USA withdrew from NATO and the UN, socialized medicine along with the 6 month waiting lists to see the doctor assigned to you by the government would disappear within a year. Trading the American system of government and economy for socialism would be like trading an Asian Leopard (like me) for a plain old domestic cat.
March 22nd, 2009 at 10:49 am
Those poor, poor, wealthy people! How I agonize over their tax burden! Why, they can’t even afford twenty vacation homes any more! How are they supposed to recreate with only nineteen vacation homes? Oh, the humanity!
In the spirit of supreme and selfless sacrifice, I volunteer to trade incomes with one of the wealthy, so it will be MY burden to shoulder the heavy load of the crushing taxes they must pay! I do this out of sheer altruism, so please wealthy people, contact me to arrange the trade! Free yourselves now!
March 27th, 2009 at 2:54 am
A progressive tax system simply asks the strip-miners to fill in the hole when they are done.
All this nonsense about HIGHER taxes is simply empty rhetoric. Look at the tax rates historically … even during historically great economic times … taxes on the wealthy were much higher than they are now and far higher than anyone is planning to make them as part of this increase. The incremental difference is ridiculously small.
The problem is the accelerating greed of the “ruling” class. Getting a good return on your investment money used to be “X” … now it is “X times 10.” Executives in the 50’s made about 40 times what the average joe made … now the number is closer to 400 times.
The government has been systematically syphoning money from the poor and middle class and putting into the hands of the wealthy and super-wealthy for decades. Reversing this trend is going to be painful for some … but we need to ask the people who can afford to sacrifice to make the sacrifice … and pray that they respond like responsible members of society and not petulant children.
April 8th, 2009 at 11:49 am
liberals don’t see free people working, they only see milk-cows… why people can´t keep his own money?? They made it, so they should expend it as they like…
why i should have a “right” to others money?????
April 20th, 2009 at 1:56 am
Its a nice theory but not reality as you pay for what you have and not what you don’t have, right? If I own a bundle then its understandable that a bundle is what I’m taxed on. If I own little then its understandable thats what I’m taxed on? Its what makes the rich go out and buy themselves a bunch a politicians to see it their way. And the Rich don’t like to pay its what got them Rich so let them take there dime elsewhere because one thing for sure there is nothing like a bunch of Rich to bring a poor neighborhood down as its Starve a Child get a Tax Break in BC as the Rich ensure they get the breaks. No breaks for kids though.
April 20th, 2009 at 2:01 am
And lets not forget how Business also ensures it has a steady supply of cheap labor as someone has to pay the price. As despite it being their business or coporation apparently its the working slob who is expected to work for nothing, or close to it.