Our Tax System Explained

January 17, 2007

The following email, which has been circulating in cyberspace, nicely refutes the myth that tax cuts benefit only the rich. In case the message (author unknown) hasn’t made its way into your inbox, I’d like to share it.

Suppose that every day, 10 men go out for dinner and their total bill is $100. They decided to pay their bill the way we pay our taxes.

Therefore, the first four men (the poorest) paid nothing. The fifth paid $1. The sixth paid $3. The seventh: $7. The eighth: $12. The ninth: $18. The tenth man (the richest) paid $59.

The 10 ate dinner in the restaurant every day and seemed happy with the arrangement until, one day, the owner threw them a curve, “Since you are all such good customers, I’m going to reduce the cost of your daily meal by $20.” Dinner for the 10 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, the paying customers? How could they divide the $20 windfall so that everyone would get his “fair share”?

They realized $20 divided by six is $3.33. But if they subtracted that from everybody’s share, the fifth man and the sixth man would each end up being paid to eat their meal.

So, the restaurant owner suggested 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.

The fifth man, like the first four, now paid nothing (100% savings). The sixth paid $2 instead of $3 (33% savings). The seventh paid $5 instead of $7 (28% savings). The eighth paid $9 instead of $12 (25% savings). The ninth paid $14 instead of $18 (22% savings). And the tenth 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.”

“I only saved a dollar too,” said the fifth man. “It’s unfair that he got 10 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 10th and beat him up.

The next night the 10th 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 among them for even half the total.

Food for thought as our Conservative Government prepares to table its second budget early this year.