Tax Cuts

I am copying this from elsewhere as for me, it explains how tax cuts should be considered.

Jon

Suppose that once a week, ten men go out for beer, 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.
• And the tenth man (the richest) would pay £59.

So, that’s what they decided to do.

The ten men drank in the bar every week and seemed quite happy with the arrangement until, one day, the owner caused them a little problem. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your weekly beer by £20.” Drinks for the ten men would now cost just £80.

The group still wanted to pay their bill like 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 that everyone would get his fair share?

They decided to follow the principle of the tax system they had been using and worked out the amounts that each should now pay.

• And so, like the first four, the fifth man now paid nothing (a 100% saving).
• The sixth man now paid £2 instead of £3 (a 33% saving).
• The seventh man now paid £5 instead of £7 (a 28% saving).
• The eighth man now paid £9 instead of £12 (a 25% saving).
• The ninth man now paid £14 instead of £18 (a 22% saving).
• And the tenth man now paid £49 instead of £59 (a 16% saving). 

Each of the last six was better off than before, with the first four continuing to drink for free. 

But, once outside the bar, the men began to compare their savings. “I only got £1 out of the £20 saving,” 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 £1 too. It’s unfair that he got ten times more benefits than me!” 

“That’s true!” shouted the seventh man. “Why should he get £10 back when I only got £2? The wealthy get all the breaks!” 

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything. This new tax system exploits the poor!” The nine men surrounded the tenth and beat him up. 

The tenth man didn’t show up the next week for drinks, so the nine 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 to pay for even half of the bill! 

The people who already pay the highest taxes will naturally benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just might not show up anymore. They might start drinking overseas, where the atmosphere is somewhat friendlier!