Five people met at a discussion group where the topic being debated was tax cuts. The battle lines were drawn between one view that everyone should be entitled to a tax cut of the same percentage and another view that such a tax cut unfairly favors the rich at the expense of the poor. As the battle raged on toward the conclusion of the meeting these five individuals were enjoying the debate and wished to continue, so they agreed to retire to a nearby Italian restaurant for some dinner and lively discourse.
Before going into the restaurant there was some concern regarding splitting the bill. So in the spirit of the evening they agreed to share information about their incomes and split the bill according to what percentage of the income tax burden their income bracket carried. As luck would have it, they each fell into a quintile of the income scale.
- Adam earns $15,000 putting him in the bottom 20%
- Betty earns $27,000 putting her in the 2nd quintile
- Charlie earns $42,000 putting him in the 3rd quintile
- Dave earns $61,000 putting him in the 4th quintile
- Eddie earns $82,000 putting him in the top 20%
Dinner was delicious. Luigi can do magic with food and his prices are very reasonable. At the end of the meal the check came to $100. So taking out a chart they had that showed how much of total income taxes were paid by each 20% of income earners, the bill was broken down as follows:
- Adam paid $0.95
- Betty paid $4.12
- Charlie paid $8.98
- Dave paid $11.99
- Eddie paid $73.96
Enjoying each others company they continued to meet each week for dinner, under the same ground rules for splitting the bill. One night at the end of the meal Luigi stopped by their table and said that since they were such good customers he was taking 20% off the bill. They began discussing how they should share this windfall, without making progress. Luigi, who had been watching these proceedings with great interest over the weeks, said, “Look, if you split the money evenly, you each get $4. But, that means one person would actually be getting paid to eat. That’s not fair.” They seemed to nod in agreement, except for Adam who thought that getting paid to eat was a splendid idea. Luigi continued, “Why don’t you just take 20% off of each one’s share? Don’t worry, I’ll figure it out for you. By now I have your shares memorized.” They agreed.
The bill was calculated and came out as follows: Adam went from $0.95 to $0.76, a savings of $0.19; Betty went from $4.12 to $3.30 a savings of $0.82; Charlie went from $8.98 to $7.18 a savings of $1.80; Dave went from $11.99 to $9.59 a savings of $2.40; and Eddie went from $73.96 to $59.17 a savings of $14.79.
As they were walking out of the restaurant Adam whispered to Betty, “I only saved $0.19 from the discount. What did you save?”
Betty replied, “$0.82 was all I saved. Geez, what’s the point? Hey, Charlie, how much did you save?”
Charlie looked back at her and said, “A buck-eighty. Chump change.”
By the time they reached the door they were pretty agitated. Adam grabbed Eddie by the collar and shouted, “Who do you think you are taking all that money?” Charlie shoved Eddie and seethed, “You rich guys are all alike!” Betty crowded in and shouted encouragement. Pretty soon it broke into fisticuffs with Eddie on the ground getting punched and kicked.
Luigi ran out of the restaurant wielding a meat cleaver and drove them off Eddie. He shouted at them, “You get the hell out of here before I call the cops.” He then helped Eddie up and took him to the emergency room.
The next week the group returned to the restaurant, but without Eddie who was still laid up. They enjoyed the meal as usual and when the bill came it was $80, not because of a discount but because Eddie wasn’t there. They each put up their usual amount and were preparing to leave when Luigi came back looking rather angry, “What’s the deal here? You’re $59.17 short. The bill is for $80 and you only have $20.83 here.”
They looked at Luigi like he had three heads and then realized that Eddie was not with them. Luigi tossed the bill back on the table, “You better come up with the dough or start washing dishes.”
The four fished in their pockets and looked at each other. They realized they couldn’t come up with the cash and shuffled off toward the kitchen.
Class Warfare
The class warfare argument is that an equal percentage tax cut is unfair because those with higher incomes, who pay the lion’s share of the taxes, would realize greater savings in dollar terms, not percentage terms, than those who pay very little in taxes. Consider this.
What if the top 20% of all wage earners said that they had had enough with high taxes and decided to go on strike for a year? They could dip into their savings and live off of that for one year and, because they received no income, they would owe no taxes. The tax take from individual income taxes was over $1.366 trillion in 2006. If the top 20% pay 74% of the taxes, that would be an immediate shortfall of $1.01 trillion dollars. Want to talk about a budget deficit?
Remember that this country was founded by a revolution that started with taxes. If we keep telling the people who pay the overwhelming burden of taxes that they are not entitled to share in a tax cut, that they should instead shoulder an even greater portion of the load we may see another revolt. It need not be violent. It could simply take the form of those who produce the most deciding to just sit one out and let the rest take up the slack.< ><–>
