You've heard the cry in the past "It's just a tax cut for the
rich!", and it is accepted as fact. But what does that really mean?
The following explanation may help.
Suppose that every day, 10 men go out for dinner. The bill for all
10 comes to Rs100. They decided to pay their bill the way we pay our
taxes, and it went like this:
* The first four men (the poorest) paid nothing.
* The fifth paid Rs 1.
* The sixth Rs 3.
* The seventh Rs 7.
* The eighth Rs 12.
* The ninth Rs18.
* The tenth man (the richest) paid Rs 59.
All 10 were quite happy with the arrangement, until one day, the
owner said:
"Since you are all such good customers, I'm going to reduce the cost
of your daily meal by Rs 20."
So now dinner for the 10 only cost Rs 80.
The group still wanted to pay their bill the way we pay our taxes.
The first four men were unaffected. They would still eat for free.
But how should the other six, the paying customers, divide up the Rs
20 windfall so that everyone would get his "fair share"?
They realised that Rs 20 divided by six is Rs 3.33. But if they
subtracted that from everybody's share, then the fifth and sixth men
would each end up being paid to eat. The restaurateur suggested
reducing each man's bill by roughly the same percentage, thus:
* The fifth man, like the first four, now paid nothing instead of Rs
1(100% saving).
* The sixth paid Rs 2 instead of Rs 3 (33% saving).
* The seventh paid Rs 5 instead of Rs 7 (28% saving).
* The eighth paid Rs 9 instead of Rs 12 (25% saving).
* The ninth paid Rs15 instead of Rs18 (17% saving).
* The tenth paid Rs 49 instead of Rs 59 (17% saving).
Each of the six was better off, and the first four continued to eat
for free, but 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 Rs10!"
"That's right," exclaimed the fifth man. "I only saved a rupee too.
It's unfair that he got ten times more than me!"
"That's true!" shouted the seventh man. "Why should he get Rs10 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 and beat him up.
The next night the tenth man didn't show up for dinner. The nine sat
down and ate without him, but when they came to pay the bill, they
discovered that they didn't have enough money between all of them
for even half of it.
That, boys and girls, journalists and college professors, is how our
tax system works. The people who pay the highest taxes get the most
benefit from a tax reduction. But, tax them too much, attack them
for being wealthy, and they just may not show up at the table
anymore.