Putting Tax-cuts in terms everyone can understand…
Suppose that every day, ten men go out for dinner and the bill for all 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 like they do now with the present income tax structure.
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 of the bill.
So that is what the ten men decide 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 all are such good customers I am going to reduce the cost of your daily meal by $20”. Dinner for the 10 men now costs just $80...
The group still wanted to pay the bill the same way that they paid their 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 everybody would get his “Fair Share”?
They realized that $20 divided by six is $3.33. But they subtracted that from everybody’s share, then the fifth and sixth man would each end up being paid to eat their meal…
So, the restaurant owner suggested it would be fair to reduce each mans bill roughly the same amount; and proceeded to work out the amounts each man would pay.
The fifth, like the first four now paid nothing (100% savings).
The sixth man now paid $2 instead of $3 (33% savings)
The seventh man now paid $5 instead of $7 (28% savings)
The eight man now paid $9 instead of $12 (25% savings)
The ninth man now paid $14 instead of $18 (22% savings)
The tenth man now paid $49 instead of $59 (16% savings)
Each of the six was better off then 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. Its 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 exploit’s the poor!”
The nine men surrounded the tenth man and beat him up…
The next night the Tenth man did not 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 the bill!
And that Boys & 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 might 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
Checked into this and found one article that claims Kamerschen did not author this but none of the articles disputed the theory or numbers used for this example…