Suppose that every day, five men go out for drinks and the bill for all five comes to $100. If they paid their bill the way we pay our taxes, it would go something like this…
The first man (the poorest) would pay nothing
The second would pay $4
The third would pay $9
The fourth would pay $18
The fifth man (the richest) would pay $69
So, that’s what they decided to do.
The five men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.
“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20”. Drinks for the five men would now cost just $80.
The group still wanted to pay their bill the way we pay our taxes. So the first man was unaffected. He would still drink for free. But what about the other four men ? How could they divide the $20 windfall so that everyone would get his fair share?
The bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts that each should now pay.
The second now paid $2 instead of $4 (50% saving).
The third now paid $6 instead of $9 (33% saving).
The fourth now paid $13 instead of $18 (28% saving).
The fifth now paid $59 instead of $69 (14% saving).
Each of the four was better off than before. And the first continued to drink for free. But, once outside the bar, the men began to compare their savings.
“I only got $2 out of the $20 saving,” declared the second man. He pointed to the fifth man,”but he got $10!”
“Yeah, that’s right,” exclaimed the third man. “I only saved $3. It’s unfair that he got three times more benefit than me!”
“That’s true!” shouted the fourth man. “Why should he get $10 back, when I got only $5? The wealthy get all the breaks!”
“Wait a minute,” yelled the first man, “I didn’t get anything at all. This new tax system exploits the poor!”
The four men surrounded the fifth and beat him up.
The next night the fifth man didn’t show up for drinks so the other four sat down and had their beers 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 of the bill!
And that, my friends, is how our tax system works. The people who already pay the highest taxes will naturally 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 somewhat friendlier.
H/T Jeff Jckso
Sources for Tax Shares:
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?DocID=458&Topic2id=20&Topic3id=22http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?DocID=558&Topic2id=20&Topic3id=22