a nice story on tax cuts

Today I just had a chat with my roommate where he expressed incredulity that anyone could even consider voting for McCain. I listed a few reasons; I mean the majority of the country voted for Bush in 2004, so clearly there's some strong polarization and probably a bubble surrounding us in liberal cities (I'm not convinced that things have changed thaaaat much since 2004, either). The last point I raised was taxes. Obama will almost certainly increase taxes, and there's a smaller chance of that happening with McCain. Then we got into a little discussion on higher taxes -- if it's only the richest, say, 5% (this is generous) affected by the increased marginal tax rate, then why should the rest of the voting electorate care? They're not the ones being taxed. I pointed out that an innate part of being American is believing in your own economic and social upward mobility. This seems sort of weak. Or maybe, the rest of the voting electorate actually thinks about it in the way written out by this economics professor (story emailed to a mailing list I read). Ha. I don't have that much faith in the electorate's intellectual upward mobility.

http://polipundit.com/index.php?p=5806

Thursday, December 30th, 2004
Never Hurts to Say It Again

A friend of mine sent me this analogy of why the Left hates tax cuts,
and why they shouldn't:

"Understanding Tax Cuts"
by: David R. Kamerschen, Ph.D

Sometimes politicians, journalists and the liberal
left exclaim; "It's just a tax cut for the rich!" and
it is just accepted to be fact.

But what does that really mean?
Just in case you are not completely clear on this
issue, I hope the following will help. Please read
it carefully.

Let's put tax cuts in terms everyone can understand.
Suppose that every day, ten men go out for dinner
and the bill for all ten comes to $100.

If they paid their bill the way we pay our taxes, it
would go something 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, that's what they decided to do.
The ten men ate dinner in the restaurant every day
and seemed quite happy with the arrangement,
until one day, 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." Dinner for the ten 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 men - the
paying customers? How could they divide the $20 windfall so that
everyone would get his 'fair share?'
They realized that $20 divided by six is $3.33. But if they
subtracted that from everybody's share, then the fifth man and the sixth
man
would each end up being paid to eat their meal.
So, the restaurant owner suggested that 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.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now paid $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now 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!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a
dollar, too. It's unfair that he got ten 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 tenth and beat him up.
The next night the tenth 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
between 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 eating overseas where the atmosphere is somewhat
friendlier.

David R. Kamerschen, Ph.D
Professor of Economics
University of Georgia"

Of course the story begs the question of why not just make everyone's deduction equal or the amount of taxes that they are currently paying if an equal portion would take them negative. But, it does show how you can spin numbers almost any way to play on people's ideas on "fairness".

Taxes are hard. In more ways than one.