How Taxes Work from Planck's Constant

The Goose With the Golden Eggs
Photo by: BuddyBradley

This email has been going around since 2001. The original source according to Snopes was a piece published in shorter form in the letters column of the Chicago Tribune on 4 Mar 2001. I have corrected the math as noted at the end of the email.

How Taxes Work...
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 any of the 20 bucks. Where is our fair share? 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 FORTY-FOUR 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!

The original email has them short by $52. But the author of the piece forgot to recalculate the cost of the dinners. Each meal costs $8; that amount times nine men equals seventy-two bucks minus their contribution of $28 leaves them in the hole for $44 not $52. However this assumes the restaurant owner will deduct for the missing diner. In real life the government would still charge 80 dollars even if no one shows up to eat, although the freeloaders would never miss a meal they don't have to pay for.

It should also be noted that the latest information from the National Taxpayers Union Foundation indicates that our rich patron actually pays not 52 but 70 percent of the tax burden. The screaming and whining by the other 9 diners would be even worse when they realize what a big cut the tenth guy gets then. The progressive dining system is obviously the most unfair system ever created by man. One day the tenth man will not be there - not because he was lynched by the other guys down the ladder, but because he finally couldn't take it anymore.

America truly became an economic giant after WWII for one reason: we rewarded skill and creativity and taxed those rewards the least. Scientists, engineers, doctors, researchers, managers, and skilled workers in all trades came to our country from the UK where taxes reached 90%, from the former East Germany and former Soviet Union where brain work was not financially rewarded at all and even to this day we get more than 150,000 Europeans yearly escaping the terrible working conditions in European Union compared to the US.

This trend will certainly reverse if we become just like the UK of old or the former Soviet Union where "share the wealth" was the dominant philosophy. The tenth diner will not stay too much longer, he already pays 70% of our total tax bill. Obama has promised that taxes will decrease for the other 9, so what will #10 have to lay out under Obama's plan? 80 to 90 percent? Be prepared to eat without him. But if he leaves, that means #9 will now have to pay 80% of the bill. But #9 doesn't make as much money and physically cannot pay that much of the bill, so #8 and all those below will have to chip in more and eventually the freeloaders who complained that the rich get all the breaks will find out that they will now be required to pay their fair share.

Aesop's story of the Golden Goose has been told for centuries. It seems that the majority of voters in Tuesday's election did not understand the story assuming they even heard it at all.