Suppose that every day, ten men go out for beer and the bill for all ten comes to Rs 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 Rs 1.
The sixth would pay Rs 3.
The seventh would pay Rs 7.
The eighth would pay Rs 12.
The ninth would pay Rs 18.
The tenth man (the richest) would pay Rs 59.
So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.
He said, “Since you are all such good customers, I’m going to reduce the cost of your daily beer by Rs 20. Drinks for the ten now cost just Rs 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 drink for free. But what about the other six men — the paying customers?
How could they divide the Rs 20 windfall so that everyone would get his “fair share”? They realized that Rs 20 divided by six is Rs 3.33. But if they subtracted that from every body’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So the bar 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!
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 pay $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 drink for free. But once outside the restaurant, the men began to compare their savings.
“I only got a rupee out of the Rs 20,” declared the sixth man. He pointed to the tenth man, “but he got Rs 10!”
“Yeah, that’s right,’ exclaimed the fifth man. “I only saved a rupee, too. It’s unfair that he got ten times more than I!”
“That’s true!!”shouted the seventh man. “Why should he get Rs 10 back when I got only Rs 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 (the richest) and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers 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, ladies and gentlemen 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 any more. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible