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A thought experiment from Biting my Tongue in support of The fragility of democracy which appeared here Feb. 28.
According to the most recent data from the Congressional Budget Office, the bottom 50% of all income earners pay just 3.4% of the taxes collected! Conversely, the top 20% of income earners pay a whopping 85% of the taxes collected. In other words, 80% of income earners contribute a miserable 15% of the taxes collected! When you consider that this lower income bracket is totally dominated by politicians that overwhelmingly favor wealth redistribution, Americans are now able to “vote themselves money.” One is left to wonder if we have already begun to “herald the end of the republic.”
... Years ago, I came across a great analogy to our system of taxes. The story has been printed and e-mailed many times in different formats, but the basic concept remains unchanged. Although the origins of the story are unknown, everyone agrees that the good ole federal government clearly provided the inspiration.
Here it is:
Every evening, the same 10 friends eat dinner together, family style, at the same restaurant. The bill for all 10 comes to $100. They always pay it the way we pay taxes:
• The first four are poor and pay nothing.
• The fifth pays $1.
• The sixth pays $3.
• The seventh, $7
• The eighth, $12.
• The ninth, $18.
• The 10th, (the most well-to-do) pays $59.
One night the restaurant owner announces that because they're such good customers, he's dropping their group dinner bill to $80. Let's call that a tax cut. They want to continue paying their bill as we pay taxes. So the four poorest men still eat free. But if the other six split the $20 tax cut evenly, each would save $3.33. That means the fifth and sixth men would end up being paid to eat. The restaurant owner works out a plan: The fifth man eats free; the sixth pays $2; the seventh, $5; the eighth, $9; the ninth, $12; and the 10th guy pays $52. All six are better off than before, and the four poor guys still eat for nothing. The trouble starts when they leave the restaurant and begin to compare what they reaped from the $20 cut. "I only got a dollar of it," says the sixth man, "but he (pointing at No. 10) got $7." The fifth guy, who also saved a dollar by getting his meal free, agrees that it's not fair for the richest to get seven times the savings as he. No. 7, grousing that the wealthy get all the breaks, points out that he only got two bucks. "Wait a minute," the first four poor guys yell in unison. "We didn't get anything at all. The system exploits the poor!"
PS I support graduated income taxes - I even support an increase in taxes, but I am offended when tax cuts are described the way they are by Democratic Politicians. They are either intellectually dishonest or stupid. (That is a mathematical 'or'.)
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Monday, March 12, 2012
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As a born again Democrat (tongue firmly in cheek) I am always offended by simple analogies that are more than a little inadequate at describing what they claim to make more understandable and yet are used to draw conclusions about complex issues. If analogies are going to be useful in any way other than as propaganda for the simple, then they should not gloss over relevant facts. In the analogy above there are several relevant facts that are not included. If the bill to be paid represents taxes then the food must represent the benefits each derives from the government. This is not likely an accurate representation of reality unless the poor eat an amount approaching zero while the wealthiest eat something closer to the $100 bill (later $80) in which case the outcome as described seems less ludicrous. My impression the way that the story is presented is that every person at the table eats a similar amount and yet pays varying amounts. This serves a propaganda purpose but is hardly an accurate analogy.
ReplyDeleteA poor individual receives very little benefit from the government while the wealthy are able to make large income earning investments, many of which probably depend on government contracts, infrastructure paid for and maintained by government, national security, etc. This why the wealthy continue to get wealthier while everyone else seems to be slip sliding away.
Your argument is a good reason for supporting:
ReplyDeletea) graduated income taxes,
b) means testing benefits, and
c) unions.
And I do.
It is not a good reason for acting like the rich pay almost no taxes.
For example the Feds make State and City bonds tax free. That means the states can sell their bonds and pay less interest. Someone who buys those bonds and gets a (let's say) 3% return and pays no taxes on it is getting the same as if they had bought corporate bonds at 5% and paid 40% on it. Then along comes some political hack, who either doesn't know or is just a liar, who talks about how that person paid "no taxes." The other two percent is what he paid in taxes, the Feds just transferred it to the state or city. That whole thing is a subsidy to the SELLERS of the bonds, not the buyers. Try explaining that to someone who hates "the rich." (Of course, I realize that the rich are just as ridiculous.)
I agree that the rich should pay more than they do now. But WE ALL are going to have to pay more to solve our problem.
Back to the Clinton tax rates!!
PS If you really think a poor individual gets very little benefit from the government in this country or any place in the "West" just do a thought experiment. Imagine asking them if they would like to live in some other place. To make it a genuine thought experiment they have to believe that if they say yes, then they will be immediately transferred there fully equipped with the language and average education.
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Like Wayne, I too support a graduated income tax and although I may not be offended I am at least chagrined at how the Ds describe tax cuts. While characterizing numbers to one’s benefit may be intellectually dishonest I would never accuse them of being “stupid”.
ReplyDeleteActually, I like the analogy of the rate cut for the diners because it illustrates that the concept of “fair” has ,in many cases, little or no meaning unless filtered through an individual’s (or group’s) prism.
Bruce makes a very good point that everyone does not receive the same benefits from the government. As a small business man I cannot “win” municipal contracts because I am not minority owned, do not have the required minimum % of minority employees, and I am not a HUB (Historically Underutilized Business) so I don’t get the same opportunity (benefit) from government as some businesses do. You can decide whether that is an indictment against government regulation or big business or the rich.
Assuming for the moment that “receive” from the government is referring to the “benefit of government” and not entitlements then I would suggest that any balanced discussion on benefits of (from) government would have to consider what people do with the provided (by the government) opportunities. Infrastructure was specifically mentioned. If the government builds a road and “A” gets an SBA loan, opens a store front on the road, hires 4 employees, and retires with 5M in his bank account while “B” uses the road to commute to work and retires with a SS check then, I think things, are as they should be.
This is a very good subject for endless discussion because it very definitely is, similar to the point Tom raises, subject to one's individual prism.
ReplyDeleteTom your comparison between a business owner who gets an SBA loan, etc. and ends up with $5M in the bank, and one who does not take that sort of risk but uses the road to go to his job and ends up with SS is valid and I agree that the results as you set them out are as they should be in our system of risk/reward. Good for the risk taker who risked it all and ended up with the high return that high risks CAN provide. But there's a reason those risks are considered high. More times than not they don't work out well.
But, those 2 are only two possible scenarios out of a lot more (I would not wager a guess at how many) possibilities. I am also a self employed person and I have been so blessed. Can I take total credit for the priviledge that I enjoy? I have known many who seemed just as deserving as I but life blitzed them and sacked them and left them lying in the dirt. I did not work harder than them, I am not smarter than them, nor am I a more moral or ethical person, if they enter into things. But my life is decidely much easier than theirs. So I am not anxious to generalize that people "get what they deserve" which it seems that you may be arguing Tom, and excuse me if I misinterpret. People more often do NOT get what they deserve. I find myself saying "there but for the grace of God..." quite a bit as I get older and see more and more clearly the potential wasteland awaiting each of us if we make even an unintentional false step.
So, what the hell am I talking about? I am talking about a real mess. A lack of natural order that says if you do x then you will get y. There are no guarantees that effort = success or even that the lack of effort = failure. The variables in these equations may not approach infinity but the number is unfathomable by me.
So, do the "poor", as we have labeled them, have any moral highground to stand on when they look at tax cuts and see the sheer awesomeness of the amount of dollars going to individuals who clearly pay almost all of the taxes in this country but also own almost all of the assets, and feel that maybe they are deserving in some way that is hard to measure? I am not going to say that none of them do. And if I believe some might, and I don't have any way of knowing who they may or may not be, it would be hypocritical of me to just generally cast stones.
In my profession I have the opportunity to work with quite a few very very wealthy individuals. And they generally are NOT the ones who opened up that storefront on a new highway while risking the debt of a small business loan. They are the ones that are generally risk averse and make really good decisions about where to put their money to work so that it will make them some more money...a LOT more money. They are a part of the 1%, as they have been called recently. And generally the ones I know feel that they deserve every penney and every comfort and every benefit as do their children and grandchildren. Well, deserve is a tough concept. There's Tom's prism again. Does effort automatically make one deserving? And what about those lucky enough to be able to amass assets with very little effort on their part? And what about those whose efforts are illegal or maybe just considered immoral? And what about....I honestly don't believe that I have the answers to my own questions on these issues. But one thing I feel very strongly about and that is it is far from cut and dried. And when we look up to the wealthy and admire them and when we look down at the poor (many don't have to look down they just have to look around) and blame them for their own misfortune and misery I am once again reminded that it is not a law of physics that x human effort = y human wealth.
Bruce, while I am not suggesting that people get what they deserve I am suggesting that the effort an individual makes on his/her own behalf in life is the most important factor in that person’s potential for success in life.
ReplyDeleteI will concede the (very good) points you make about luck, rich people making money on their money, some that get rich without effort , everyone does not get the same opportunities or the same breaks, some that make the effort but fail, and in general that the opportunities that the world presents are not equitable (or even close) for all. No one promised fair.
Early in my career I was musing to a colleague that “the rich” had already absorbed the money making opportunities and there were no more viable opportunities for getting rich. His reply was “Why are you worrying about what the rich have?” Why indeed?
Bruce you said that you are "always offended by simple analogies that are more than a little inadequate at describing what they claim to make more understandable"
ReplyDeleteHave you not heard Democratic politicians talking about the Bush tax cuts in exactly those terms?
One point of clarification. It may seem that I am wanting to "go after" the rich like the local villagers going after Dr. Frankenstein. That would not be the case.
ReplyDeleteAnd Tom, your assertion that no one promised fair happens to touch on something that has gotten me into more arguments in my life than anything else..even leaving the seat up. My Dad used to always say "where is it written that things have to be fair?" And I suppose that is a saying that has been passed down from generation to generation. But, here is the thing that bothers me about that saying. We invented a word for the concept and in general that concept has been considered a good one, as opposed to a bad one like "murder" for instance. The word is used in legal writings and philosophical writings and discussions as always as something worth striving for. And so that is what I think the purpose of the word is...to remind us that, though it is not required of us, we as a culture decided a long time ago that "fairness" is something worth putting out effort to attain. Part of our ethical and even moral underpinning. People say it all the time "that's fair"...a phrase meaning that because it is fair it is acceptable. Or the opposite "that's not fair". Or "fair enough" or "fair game" "that seems fair".
So when we say "no one promised fair" or as my Dad used to put it "where is it written that things have to be fair", I would say that you both are right. But haven't we as a civilization tacitly agreed, simply by inventing the word and then using it in such positive ways, that fair is at least a worthy goal? And when things are not fair they are generally less acceptable than if they were fair?
Wayne, two things. First it would be a mistake to assume that I don't find fault with things that are said by Democrats. I find fault with things they say all the time. They are politicians afterall and are constantly in the campaign funding mode. When I say I am now a Democrat that doesn't mean that I will defend everything that every Democrat says.
ReplyDeleteSecondly, I don't know exactly what analogies you are referring to that Democrats have used regarding the Bush Tax Cuts. But analogies by politicians are almost always inadequate because they are trying to fit an issue with a lot of variables into a few seconds of speech that will serve their or their party's agenda. Similar to bumper sticker reasoning. I have heard or read very few of either that could stand on their own 2 feet.
Even though I had not even thought about leaving the Republican Party at the time when the Bush tax cuts were passed it was clear to me that it was a ploy by Mr. W. Bush to garner the solid support of the Republican base, which was not really all that enamored with him. The Bush tax cuts bought him a second term and us several trillion tacked on to the national debt. I knew it was wrong at the time. But the 15% tax rate on dividends was just unconscionable. Even my clients were saying "whaaaat? Are you sure about this?" Even though they were the beneficiaries of it you could see by the look on their faces they were surprised by the senselessness of it. They almost looked guilty. After awhile they were saying "well.....OK" Many of my clients went from paying a LOT of taxes fairly regularly to Romney's realm of somewhere around 15%.
During WW II the top marginal rate went as high as 94% on income over $200,000. In todays dollars that would be about $2.5 million. As late as 1981, which was about when I got into the tax buainess the top marginal rate was 70% on income over $212,000 which in today's dollars would be about $530,000. The capital gains rate, now 15%, was about 25%, depending on what the taxpayers top marginal rate was.
If you think you are going to get an argument from me about going back to the Clinton tax rates then you are mistaken. I have always been in favor of that, just as I was NOT in favor of the cuts in the first place.
Oh, and I stand by my original statement that the poor, in comparison with the wealthy and well placed, individually receive little benefit from what the government does. Your comparison to living in another country altogether makes me wonder why we can't compare what you want them to pay for in your restaurant analogy with what the wealthy in this country are getting in that analogy.
And it is my understanding that there are some other countries where a poor person would be better taken care of than in this country. (Having said that I want to raise my right hand and swear on a stack of bibles that I love my country and am not saying in any way that I want to live in another one). And I'm not sure I could convince a sane person that they could, much less would, be immediately transported to another country. I'm not that convincing a salesman.
This one got away from me. I guess I messed up.
ReplyDeleteMy last comment
Bruce you said that you are "always offended by simple analogies that are more than a little inadequate at describing what they claim to make more understandable"
Have you not heard Democratic politicians talking about the Bush tax cuts in exactly those terms?
was in reference only to your suggestion that the dinner analogy (the original post) was simple and inadequate. I did not intend any argument for or against the Bush tax cuts. I did not intend to complain about analogies that the D's use. I was only asserting that the dinner analogy is valid because the dems do talk about the Bush tax cuts the same way that those poor diners talked about their idea of fairness in dividing the bill reduction.