The following is an old story about “How Taxes Work,” essentially an old right-wing metaphor trying to explain how rich people are abused and trodden upon by the lower and middle class, who are a bunch of ignorant, selfish dicks trying to rob the sympathetic, generous, industrious wealthy man. It’s storytelling legerdemain, sleight of hand with figures, like saying that Reagan cut taxes and doubled revenue, when in fact he raised taxes overall and most of the revenue increase was an illusion created by not factoring for inflation. Or the bookend arguments that (1) we should cut taxes for rich people because they pay the lion’s share of the budget, but (2) we should never raise taxes on rich people because if we took 100% of their money it would only pay for a tiny amount of the budget. These arguments depend upon half-truths and more than a little hocus-pocus with hidden values, enough so that the reader gives up on trying to do the math and just accepts what is heard.
See if you can spot any of the tricks in this often-quoted version of the shell game:
Let’s put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. 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 $7, the eighth $12, the ninth $18, and the tenth man — the richest — would pay $59.
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 (in tax language a tax cut).
“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily meal by $20.” So now dinner for the ten only cost $80.00.
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 — the paying customers? How could they divvy up the $20 windfall so that everyone would get his “fair share?”
The six men 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 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 paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of his earlier $59. 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 who pointed to the tenth. “But he got $7!”
“Yeah, that’s right,” exclaimed the fifth man, “I only saved a dollar, too … It’s unfair that he got seven times more than me!”.
“That’s true!” shouted the seventh man, “why should he get $7 back when I got only $2? 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 he 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, a little late what was very important. They were FIFTY-TWO DOLLARS short of paying the bill! Imagine that!
And that, boys and girls, journalists and college instructors, is how the 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 at the table anymore.
Where would that leave the rest? Unfortunately, most taxing authorities anywhere cannot seem to grasp this rather straightforward logic!
See how much the poorer men are total assholes?
What the story totally glosses over is the amount of effort each man puts into making that meal possible. The richest guy actually worked least hard of all for his food (but he managed the ordering so well that he deserves most of the credit!). The poorest would have liked to work for theirs but were not given the chance, and the guys in the lower and middle part of the group did the lion’s share of labor.
Not to mention that the story falsely assumes that all men eat the exact same meal—as if the poorest 40% have the exact same lifestyle as the richest 10%, or that a poor man benefits from government largesse more than an oil magnate, military contractor, or media tycoon. In a truer telling of the story, each would eat more or less what they could afford.
Not to mention the old canard that that the poorest pay no taxes. They pay no federal income taxes, but there are many other taxes they do pay, including federal payroll taxes. Even if they can’t find work, they still get hit with other taxes, usually sales taxes at least.
The story also gives the impression that the wealthiest man has simply decided to be generous for no particular reason, because he’s such a swell guy.
That and a lot more is simply assumed or omitted from the storyline, for the simple reason that if the story were told fully and truthfully, the rich guy would not come across so much as the oppressed hero.
Here’s how the story would play out if it were widened to a more realistic scope:
Ten men are associated with a company.
The first two are willing to work hard at the company, but the tenth man, the majority shareholder (who is extremely wealthy), has decided that his profit margin just isn’t big enough to justify hiring them. As a result, these men are dirt poor. When possible, they take on odd jobs at extremely low wages, but for the most part, can barely feed themselves and their families, despite their desperation to find gainful employment.
The next two men work 12- or 14-hour days at backbreaking labor for the company, and receive minimum wage. Their jobs are relatively unskilled, but still critical; the company could never function without someone doing this labor. However, they can only barely support their families. They live from hand to mouth, are usually in debt, and likely will have little pension or savings by the time they are old enough to retire. They always fear losing their jobs and being replaced by the first two men, so they don’t complain much.
These first four men cannot afford company stock, and own nothing of the company.
The next two men work 8- to 10-hour days at less menial jobs, and get paid enough to stay out of poverty, but not comfortably so. They have salable skills, but are still not irreplaceable; they also represent labor that is necessary for the company to function, but similarly fear losing their jobs to others who could fairly cheaply be trained to do their jobs. These two men have enough saved that they can buy a little stock in the company, but not much.
Most of these six would like to improve their condition, but they find themselves having a hard time: every time they find themselves getting ahead in the world, their apartment rents and other expenses go up, leaving them with less than they expected. (Guess who owns the apartment buildings.)
The next two men have fairly established skills. They have pretty good job security, and get stock options that allow them to get a 5% share in the company each. They are hardly well-off, but they are comfortable.
The ninth man is a manger. He owns 10% of the company stock, lives in a nice home, and does well. He may work long hours, but does not need to; banker’s hours would be reasonable for him, and he looks forward to a nice, early retirement.
The tenth man, as noted above, is extremely wealthy. He owns about 75% of the company and controls how it runs. He makes a high salary, but pays a lesser percentage of that salary in taxes than the five men below him, mostly by structuring his salary to take advantage of loopholes he paid to slip into the tax code. He controls everything, and decides what work all the other men do. He could easily employ all nine at comfortable wages, but would rather have a bigger yacht, so he leaves the first four men in poverty. He only creates jobs that are absolutely necessary to make him the most money, and pays as little as he can get away with. He works only when he wants to, and does very little actual labor. His wealth derives from the work of the other men below him. He claims that his “talents” are “invaluable” even when he makes stupid decisions and loses money.
When asked why he doesn’t shell out and hire the first two men or give living wages to the next two, he says that the 7th, 8th, and 9th men depend on him to bring in good dividends for them, so his hands are tied. When asked, the three men below him say that they don’t make the decisions, that the tenth man controls things, so such matters are beyond their control. They could make a fuss, but know that hiring and paying living wages to those below them would cost them, not that the tenth man would ever go along with it anyway.
The ten men go out to dinner, the bill coming to $1000.
The first two men can only afford cold franks and beans, with complimentary table water, for a total cost of $2. The rest of the men at the table chip in coupons so these two can have some bread and maybe a small snack.
The 3rd and 4th men have small burgers, fries, and soft drinks, the bill coming to $4 for each.
The 5th and 6th men have pasta with a small glass of beer, and pay $15 each.
The 7th and 8th men have sirloin steaks with salad, garlic toast, and a few glasses of wine. Their bills come to $50 apiece.
The ninth man has appetizers, a salad, a soup course, filet mignon with a nice Pinot, and his selection from the dessert cart. His bill comes to $110.
The tenth man has a rich 6-course meal with caviar, foie gras, lobster thermidor, and much more, with a few bottles of the best champagne washed down with a smooth 50-year-old scotch. His bill comes to $750.
When he sees the bill, he thinks, “Holy crap! Look at how much I’m paying! These other deadbeats should really help out with this!” However, he knows that the others would not easily go for this, so he tries to come up with some clever schemes to get the others to agree to go dutch, or at least foot more of his own bill somehow.
One such opportunity comes along when the owner of the restaurant, happy to get such good business, and wanting these guys to spend this much at his establishment as often as possible, offers to cut the bill by 20%.
The wealthy man immediately jumps in with an offer: “Let’s try to do this fairly.” He points to the first four men. “You bottom forty-seven perce—er, you four guys, you’re hardly paying a damn thing. You should step up and contribute. I suggest you all chip in and pay a few more bucks apiece. It’s only fair.”
“You next two guys, you pay $15 each; the next two $50 each; and you, the ninth guy, you pay $110. I suggest you and I all get the exact same cut—10% off. So the bills will come to $13.50 for the first two of you, $45 for the next two, and let’s call it $100 even for the ninth guy, just to round things off. I handle the rest, which, you have to admit, is the biggest chunk of the bill!!”
Calculators come out and soon it becomes apparent that the richest guy got a whopping $171 off. “Hey Mitt,” one of them says, “you got the biggest cut of all!”
“Of course,” the wealthy man replies, lounging back in his chair; “I pay the biggest part of the bill, so I deserve the biggest cut.”
Another man protests, “But your cut is much more than 10%; you save about 30% off your original bill.”
The wealthy man counters, “I need to have that money so I can create jobs for you guys!”
“Create what jobs?” one of the poorest two men complain. “You keep saying that, but you never actually spend any of the money you wheedle from us on making any new jobs.” “Yeah,” the next four complain, “You always say we’re in line to get better wages, but when it’s time to renew contracts, you claim that there just isn’t enough money for it!”
The first six men, seeing themselves being slighted, decided to jump the wealthy guy and pound him. However, the wealthy guy’s bodyguards cut that idea short, and guy #3 finds himself fired as an example to the others. Man #4 was told to do the third man’s work in addition to his own without any extra pay, which the wealthy man later boasted as an increase in productivity. There was talk of unionizing, but with the laws allowing the wealthy man to bust unions with impunity (paid for by the wealthy man’s lobbying firm), the working stiffs had no real recourse.
There was talk of voting in the next election to make the wealthy guy pay more of his fair share, but the wealthy guy was able to buy advertising to convince most of the others that this idea was effectively communist confiscation and generally unAmerican and unfair. Most were also convinced that they would someday get rich, and they didn’t want to give up their imaginary future wealth any more than the tenth guy wanted to give up his real wealth.
Also, he was able to convince the 4th, 5th, and 6th men that their problems were a result of the first three men mooching off of them (“Your hard-working dollars ended up paying for their franks and beans!”), and that their salaries were lower because the better pay given to the 7th and 8th men were eating up too much of the budget. That divided all of the other men enough that they accomplished nothing in the end.
By the time everyone finished fighting amongst themselves, they had all but forgotten that not only did the wealthy guy get away with the biggest reduced bill, but he left without paying a tip, which the other nine had to split between them.
Now, if they were able to base their company more on true merit and fairness, they would all have a nice steak dinner for $50 apiece and split the bill evenly—except for the wealthy man, who got pissed off that he no longer gets as much as his heart desires. He has to be satisfied having only ten times more than everyone else—which annoys him, as his management talents are obviously much more valuable than the labor he directs.
So the other nine split a $450 bill nine ways, which is okay because now they all make reasonable wages and can afford it.
Not that that’s ever going to happen. Communism, remember? Society will fall apart if the rich guy can’t take home most of the toys.
And that, boys and girls, journalists and college instructors, is much closer to how the tax system works.
That’s a lot more realistic a scenario than the original mendacious cock-and-bull story; it matches pretty well with the kind of tax policies Republicans have been trying to push through for the past several years.
But it’s also a longer story, and takes a little more thought. Most people won’t get so far as to read this line of text. Too much effort.