Taxes

I looked pretty hard to find anything disputing this parable about taxes, I keep getting it emailed to me from respectable people who deal with money for a living and ought to know if it's an acurate analogy to our tax system or not. So let's get the parable out of the way first:

Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. They decide to pay their bill the way we pay our taxes. It ends up 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. 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.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20," he said. So now dinner for the ten only cost $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 -- 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 percentage, 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. However, 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. "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 something important. They were $52 short!

The first thing I thought of after I read this was the current trend in outsourcing. Let's say the ten men are Americans and they have been going to Applebees all this time. The day after the tenth man gets beat up, he decides to find himself a more appreciative dinner group and they go eat at an Indian restaurant instead. I suppose most of the time, people focus on the individual's money in the story. But I'm suddenly interested in the group and what happens to that group when the richest man decides he isn't going to take any more abuse from his dinner friends. He goes and gets a new group of more appreciative friends... Indians perhaps? I'm all for fair treatment of the working man, but there's a threshold at which collective bargaining pushes past fair and into greedy. In an age where there was no alternative to using American workers labor unions were pretty powerful and the corporate boards had little choice but to give them what they wanted. Today, the corperate boards can just move the whole operation overseas and give the work previously done by Americans to Indians.

There's lots of talk about enacting punitive measures for companies who do this so the American worker will be protected. However, protectionism in trade doesn't historically work. The American worker has two basic tasks to perform to stem the tide of outsourcing: First, he must be more valuable as an employee than a worker in another country. Second, labor unions which seek fair treatment by employers have to extend their reach beyond the American shores and ensure that those Indian workers will demand the same benefits as American workers. This helps keep the corporations from exploiting a less organized workforce. It also levels the playing field in employment trade.

As for the taxes... well until someone proves to me that the analogy is flawed, we have to give it some thought and consider the consequences carefully.