Here it is. It’s been going around the Internet for nearly two years, but judging from the increasing frequency of late, it seems to have enjoyed new life. [My comments are in brackets.]
I was having lunch with one of my favorite friends last week and the conversation turned to the government’s recent round of tax cuts. ‘I’m opposed to those tax cuts,’ the retired West coast college instructor declared, ‘because they benefit the rich. The rich get much more money back than ordinary taxpayers like you and me 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.
So I said to him, let’s put tax cuts in terms everyone can understand. Suppose that every day 10 men go to a restaurant for dinner. The bill for all ten comes to $100. If it was 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 the 10 only costs $80.
The first four are unaffected. They still eat for free. [Ah, what a sweet deal that man who cleans the airport urinals for $6 an hour has. He eats for free! Or how about that woman who cleans your hotel room. She, too, eats for free! Except for the payroll tax taken out of their checks and the sales tax they pay. And the tax they pay on their gasoline and their phones if they can afford gas or a phone. Why should the rest of us pay taxes to help educate their kids and provide them with health care? They shouldn’t be allowed to have kids. And if they have them anyway, those kids don’t deserve decent schools and health care. Our first priority has got to be cutting taxes for the top, not providing good schools and health care to deadbeat six year olds.] 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 percentage, being sure to give each a break, and he proceeded to work out the amounts each should pay. And so now 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 of the $20,’ complained the sixth man, pointing to the tenth, ‘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 man 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, girls and college instructors, is how America’s tax system works. The people who pay the highest taxes should 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 any more. [This is why in the 1940s and 1950s, when the top federal tax bracket had been hiked to 90%, in part to help finance World War II and the Korean War, highly productive people all just retired and the American economy collapsed. Or, well, they didn’t and it didn’t – America did pretty well in the 1940s and 1950s – but that’s a minor detail. And this is why in the 1960s, when the top bracket was 70%, highly productive people all just retired and the American economy collapsed. Or, well, they didn’t and it didn’t either – the American economy did pretty well in the 1960s – but that, too, is just a minor detail.]
I’m not arguing for a 90% or 70% top bracket. Or even for the 50% top bracket of the fist six Reagan years. What I’ve been saying ever since Texas Governor Bush began promising huge tax cuts for the wealthy is that the 39.6% top bracket of the Clinton/Gore era was a pretty good balance and should not be cut.
Yes, 90% and 70% and all the crazy tax shelter schemes that went with them were nuts. But 28% – which was where the top bracket ended up in 1986 in President Reagan’s second round of cuts – we now know was too low. It may have been well intended, but it overshot the mark. We added $3 trillion to the national debt in the dozen Reagan/Bush years.
The Bush administration inherited a good balance that was working. Their first round of tax cuts turned surpluses that were projected as far as the eye could see into deficits projected as far as the eye could see. And now, in the wake of two wars we need to finance, against terrorism and, whether we go to war or not, the buildup for Iraq, the President insists on more tax cuts (mainly, as usual, for the best off).
Normally, taxes are raised to pay for wars. The Bush administration proposes to pay for its wars by cutting taxes on the rich and borrowing the cost from future generations.
But let’s leave the macro level and get back to that top tax bracket. It’s worth pointing out that few people if any actually pay the top rate on all their income. In the first place, they pay less on the first dollars they earn, just like anyone else. It is a graduated rate. More important, they pay 0% on their municipal bond interest (while sacrificing much less than 39.6% in yield compared with equivalent taxable bonds) and 0% on their capital gains until they choose to ‘realize’ them – at which point they pay only about 20%.
This is not to say that the best off don’t pay a heck of a lot in taxes – they do! They should be proud that they do. We should be grateful that they do.
But it is a balance. And the balance under Clinton/Gore worked out pretty well for everyone – including the top 1%, who got richer faster than any other group, even after tax.
So why, when you look at all the problems and challenges in the world, would you say, ‘Well, we can’t do everything, so let’s direct most of our efforts and resources toward improving the plight of the rich. Let’s shift the balance further in their favor.’ Why would you say that?
The most remarkable thing about this idiotic thing about the 10 men having the $100 dinner is that it seems to be passed around the Internet not, for the most part, by people with adjusted gross incomes in excess of $383,000 a year (the top 1%), but, rather, by people so eager for $1,000 and $2,000 tax cuts that they don’t bother to take into account the extra $20,000 or $40,000 in national debt they and their children will be taking on in return – money borrowed largely to give much, much larger tax cuts to people like George Bush (whose annual tax savings have been estimated at $44,500) and Dick Cheney ($327,000). Not to mention the really rich.
PROGRAM NOTE: Don’t miss Brother/Outsider on PBS’s ‘P.O.V.’ tonight. It’s the life of Bayard Rustin – and a part of the Martin Luther King ‘I have a dream!’ story that many do not know. Supporting cast includes a much younger Strom Thurmond. Where I live, P.O.V. comes on at 10pm.
Quote of the Day
[It would be splendid if someday] economists could manage to get themselves thought of as humble, competent people, on a level with dentists.~John Maynard Keynes
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