Taxes? The rich get richer and the poor get poorer, right? Can the average American taxpayer hope to understand tax reforms?
Copyright: olegdudko / 123RF Stock Photo
Before Monday, October 30, the answer would have been, “Most unlikely!” Opinions changed after listening to the full White House Press briefing by Sarah Huckabee Sanders.
President Trump’s White House Press Secretary explained proposed tax reform with a fictitious illustration.
Ten reporters go to a particular bar for beer after work. Their total bar bill comes to $100. If these ten reporters paid their tab every night the way we pay our taxes, it would go something like this:
The first four, the poorest, would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
And the tenth, the richest, would pay $59.
Everyone was happy with the arrangement—until one day, the bar owner threw them a curve ball.
Bar tab reform
“You are all such good customers,” the bar owner said, “I’m going to reduce the cost of your daily beer by twenty dollars.”
The drinks for the ten reporters would now cost just $80. The group still wanted to pay the bill the way we pay our taxes, so the first four were unaffected. They would still drink for free, but what about the other six?
How could they divide the $20 windfall so that everyone would get their fair share? They realized that $20 divided by 6 is $3.33, but if they subtracted that from everyone’s share, the fifth and sixth reporters would each end up being paid to drink beer.
The bar owner suggested it would be fair to reduce each man’s bill by a higher percentage the poorer he was. By doing that, he explained, they would continue following the principle of the tax system they’d been using.
Under the new system, the fifth reporter, like the first four, paid nothing. He got a 100% saving.
The sixth now paid $2 instead of $3, a 33% saving.
The seventh now paid $5 instead of $7, a 28% saving.
The eighth now paid $9 instead of $12, a 25% saving.
The ninth now paid $14 instead of $18, a 22% saving.
And, the tenth now paid $49 instead of $59, a 16% saving.
So, each of the six was better off than before, and the four continued to drink for free.
But, once outside the bar, the reporters began to compare their savings.
“I only got $1 out of the $20 savings,” declared the sixth reporter, and she pointed to the tenth reporter, “He got $10.”
“Yes, that’s right,” explained the fifth reporter, “I only saved $1, too. It’s unfair that he received ten times more benefit than me.”
“That’s true,” shouted the seventh reporter. “Why should he get $10 back when I only get $2. The wealthy get all the breaks.”
“Wait a minute!” yelled the first four reporters in unison, “We didn’t get anything at all. This new tax system exploits the poor.”
The nine reporters yelled at the tenth and made him feel bad.
The next night, the tenth man didn’t show up for drinks. The nine sat down and had their beers without him.
But when it came time to pay the bill, they discovered something important: They no longer had enough money between them all to cover even half of the bill.
“And that, ladies and gentlemen, is how our tax system works. The people who already paid the highest taxes will naturally benefit from a tax reduction, but not the largest percent benefit. Tax them too much, attack them, and they might start drinking overseas where the atmosphere is somewhat friendlier.
“Our tax cuts and reforms will create a fairer system that works better for everyone. It will make our country the friendliest in the world for American families trying to build a better life for themselves and their children– and for American companies seeking a competitive edge.
Can the average American taxpayer ever hope to understand tax reforms? Absolutely, if those in charge will take the time to explain the basics. Sarah’s illustration served to clarify two crucial facts:
- why tax reform benefits the wealthiest. Those paying the most taxes, will benefit from the reforms, but those paying nothing will continue to pay nothing, and
- why we need the upper-level taxpayer. without the upper-level taxpayer’s contribution, America will not be able to keep things going.
If you hear only snippets of White House Press Briefings on your primary news channel, why not check out other sources to listen to the full briefing? You might be missing some interesting, as well as important information.
One such YouTube channel is Golden State Times where such briefings, speeches, and interviews are posted in full, without commentary.
Another YouTube channel you might find informative is One America News (OAN).
Thanks to the internet, we can engage our minds in discovering explanations and truth at the click of a mouse. Educating ourselves is our best weapon in today’s war of accusations and half-truths.