Let's put tax cuts in terms everyone can understand. Suppose that every day, 10 men go out for beer and the bill for all 10 comes to $100.
If they paid their bill the way we pay our taxes, using the progressive tax formula, the billing would go like this:
The first four men (the poorest) would pay nothing.
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.
So, the majority of the drinkers voted democratically to do that.
The 10 men drank in the bar every day and seemed quite happy
with the arrangement, until one day the bar owner surprised them.
"Since you are all good customers," he said,
"I'm going to reduce the cost of your daily beer by $20.
Drinks for 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 drink for free.
But what about the other six men, the paying customers?
How could they divide the $20 windfall so everyone would get his fair share??
They realized that $20 divided by six is $3.33.
But if they subtracted that from everybody's bill,
then the fifth man and the sixth man would each
end up being paid to drink beer. That didn't seem fair.
So, the bar owner suggested reducing each man's bill using the US tax formula.
Then he presented the amounts each should pay.
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (savings 33%).
The seventh now pay $5 instead of $7 (savings 28%).
The eighth now paid $9 instead of $12 (savings 25%).
The ninth now paid $14 instead of $18 (savings 22%).
The tenth now paid $49 instead of $59 (savings only 16%).
Each of the six was better off than before and the
first four continued to drink for free. But outside the
bar, the drunks compared their savings without
any sense of thanks.
"I only got a dollar out of the $20," declared the sixth man.
He pointed enviously to the tenth man,
"but richie got $10!" "That's right," exclaimed the fifth man.
"I only got a dollar back. It's unfair that the richest guy
got ten times more than I got!" "Yeah!" shouted the seventh man.
"Why should he get $10 back when I got only $2?
The wealthy get all the breaks!" "Wait a minute,"
yelled the first four men in unison.
"We did not get anything at all. The US system exploits the poor!"
Then the nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks,
so the nine had beers without him. But when it came
time to pay the bill, they discovered something important.
They didn't have enough money from all of them for even
half of the bill!
And that boys and 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 may not show up anymore.
In fact, they might start drinking overseas where the atmosphere is friendlier.
