# (Reality) Check, Please: Why the Restaurant Tax Analogy Doesn’t Work

Updated on April 4, 2013

There’s an analogy about the nation’s tax structure that involves several people who make different amounts of money splitting the check at a restaurant. The analogy purports to explain why a progressive tax structure is unfair. It tries to convince us that a tax break that sends 90% of benefits to the top 10% of income earners is perfectly fair. And it seems to make a lot of sense. Listen to the analogy without thinking about it much, and you’ll probably be okay with tax breaks for the wealthiest people in the world. The problem is, the analogy is completely false.

## Here’s the Analogy

Suppose a group of ten people all gathered together at a restaurant every week for dinner. Suppose further that they had decided that they would split the check according to their incomes, with the person who made the most money paying the most, and the person who made the least money paying the least. To make the math simple, we’ll assume that every week, the dinner bill for the ten people comes out to an even hundred dollars. The people split the check like so:

--the first four, with the lowest incomes, paid nothing;
--the fifth paid \$1;
--the sixth paid \$3;
--the seventh paid \$7;
--the eighth paid \$12;
--the ninth paid \$18;
--the tenth person, with the biggest income, paid \$59

They continued in this arrangement for many weeks, until one day, the restaurant manager visited their table to deliver the check himself. He told his ten guests, “You folks have been great customers, and we appreciate your continued patronage. To show our appreciation, I’m going to knock \$20 off the price of your meal. I’ve already worked out your individual payments, according to your original agreement.”

The payments worked out like this:

--as before, the first four people paid nothing;
--the fifth person now paid nothing instead of paying \$1;
--the sixth person now paid \$2 instead of \$3;
--the seventh paid \$5 instead of \$7;
--the eighth paid \$9 instead of \$12;
--the ninth paid \$12 instead of \$18;
--leaving the tenth with a bill of \$52 instead \$59

Every person was better off than before, but after leaving the restaurant, they all started comparing their savings.

“Hang on a sec,” says Number 6, “I only got a buck out of the \$20 reduction, and he got \$7!”

“Hey, you’re right!” says Number 5. “Why should Number Ten get seven times what we got?”

“Yeah, I’m with you guys,” says Number 7. “Number Ten got more than double what I got.”

And One through Four chime in, “And we didn’t get anything at all! No fair!”

To make his dining companions feel better, Number Ten divides his \$7 savings amongst the group, leaving each person (except Number Ten!) with \$0.70 more of refund money.

The following week, Number Ten didn’t show up to the dinner group. The remaining nine people sat down to dinner as usual. But when the check came, they discovered that they were now \$52 shy of paying their \$80 bill.

And that, friends, is why the wealthiest taxpayers benefit the most from a tax cut: they pay the most in taxes. Tax them too much, punish their success, redistribute their wealth, and they just may not show up at the table anymore.

## Seems to Make Sense, Doesn’t It?

After reading this little story, I bet you’re all indignant that anyone would see anything wrong with a tax cut that benefits the rich more than it benefits the poor. The poorest folks don’t pay taxes in the first place, so why should they get money when there’s a refund? To get a refund, you had to have paid something in the first place, right? Right. And if you pay ten dollars and someone else pays a hundred dollars, and you both get 10% back, it’s only right that you get a dollar, and the other guy gets ten, right? Right.

If America really worked like that imaginary restaurant where the bill always comes out to an even hundred dollars and billionaires sit down to eat once a week with unskilled day-laborers, it would be perfectly just for Number Ten to get \$7 when Number Five gets only \$1. But this analogy depends on many unspoken assumptions that are not true in the real world.

## Assumption #1: All the People are Eating the Same Meal

Since the analogy purports to be only about our tax system (and by association, what we all get for our tax dollars), we’re assuming that all ten people are getting the same meal. In the real world, you’d be a fool or else deliberately obtuse to assert that the wealthy and the poor enjoy comparable lifestyles, but we’re not talking about things like goods and services that we get in exchange for our money (like a new Cadillac as opposed to a used Chevy). The analogy is more about the differences between the rich and the poor in America, and how the mere fact of being one or the other impacts your life in ways that most of us never even consider.

The meal represents things like Defense, Social Security, the Interstate Highway System, the National Parks, farm subsidies, Food and Drug Administration, Federal Aviation Administration, Federal Bureau of Investigation, and so on. But it also represents—and this is very important to understand—the quiet little differences between the rich and the poor in America. Yes, it’s about what the government uses our tax money to do for us, but it’s also about what the rich get simply by being wealthy—not what they get when they spend their wealth, understand, but what they get merely for having it. These differences are rarely talked about, difficult to measure, and by accident or by design, many of them are self-perpetuating.

## Assumption #2: All the People are Ordering From the Same Menu

The analogy assumes that the bottom four people have all the same options available to them as the top person has. As mentioned, this is not about being able to afford luxuries; this is about options available to a person in our society. Take a look at public schools, for example. (No, this isn’t going to become an argument for or against public schools; I’m using them only as an example.) They’re meant to be giving the same quality of education to everyone who attends them, right? But they don’t. Whether you love public education or hate it, it remains a fact that poor inner-city and rural districts have to make do with less, because they are funded by taxes raised from the residents of those districts. Wealthy suburban districts, in contrast, have state-of-the art (or at least, adequate) facilities, plenty of (or at least enough) materials for each student, and attract the best teachers because they pay higher salaries. How do you get your kids into one of those wealthy suburban school districts? You have to live there. How? Buy a house there. How? Well, for the most part, you can’t.

Of course a person with a below-average income can’t afford to buy a five-bedroom home in, say, Grosse Pointe Shores, Michigan. It’s too expensive. Maybe he could afford a two-bedroom home in Grosse Pointe Shores, but that point is moot: there aren’t any. Those wealthy suburbs don’t generally approve development plans that include housing that people of modest means can afford. Further, it’s actually against the zoning ordinances to build a modest home that a person with a modest income could afford. The poor are being systematically denied access to the level of education that the wealthy take for granted. This is just one example.

In a more accurate analogy, the bottom half of the group would have a certain number of choices, and each customer up the economic ladder would have a progressively wider array of menu options.

## Assumption #3: All the People are Eating at the Same Table

In the restaurant analogy, it’s assumed that since the ten diners are sharing a check that they’re sitting at the same table. But in the real United States, billionaires do not usually dine with day laborers. As mentioned above, they do not live next door to each other. For the most part, they don’t even live in the same towns.

A wealthy suburb can usually prevent a dirty incinerator or power plant or chemical factory from being built nearby, even if the thing is necessary to the greater metropolitan area. (This is often referred to as NIMBY, or, Not In My Back Yard.) But poorer areas are less able to prevent such facilities from being built in their collective backyard, and when built, those facilities become a mixed blessing at best. Perhaps they provide jobs for the nearby residents (hazardous, unhealthy jobs, to be sure, but jobs), but they also have a negative effect on public health and they drive down property values. Thus, even if a poor person manages to save enough money to buy his way into a cleaner neighborhood, his home will likely be worth less than when he bought it (this is even more true thanks to the housing crisis), and moving will be a less than viable option, even if he’s never missed a mortgage payment.

If the restaurant analogy matched the real world more closely, the wealthiest diner would have a great table near a window, perhaps with a strolling violinist making the rounds every now and again, while the poorest diners would have seats by the restrooms, next to the kitchen, near the bar or in some other high-traffic area. Their tables would be crowded together, and their chairs would get bumped every now and again as someone squeezed past. Perhaps they’d be seated right under the air vent, and would have to deal with a continual flow of frigid or overheated air, depending on the season. They can ask to move to a better table, but the maitre d’ knows that they’re not lucrative customers, so no table will be forthcoming.

## Assumption #4: All the People get the Same Quality of Food

Even if you allow for the ten diners in the analogy to be ordering different selections from the menu, the analogy assumes that the food is all going to be cooked to the same standard of quality. If Number Ten orders the same chips and salsa appetizer, burger and fries entrée, and tiramisu dessert as Number Three, those two meals will be as alike as possible in Analogy World. But we don’t live there.

Even the water that comes out of the tap in your house will have a different level of quality, depending on whether you’re wealthy (and live in a wealthy community) or not (and live in a less than wealthy area). The Environmental Protection Agency is meant to keep people and corporations from polluting the country’s groundwater, but alas, the EPA doesn’t protect poor rural citizens with the same zeal as it does wealthy suburban citizens. Many of us know about Pacific Gas and Electric’s deliberately negligent pollution of a rural water table from the movie Erin Brockovich. That story has a happy ending, but there are many others which haven’t yet ended. You would think that the EPA would be all over a corporation that taints the drinking water of American citizens. If those citizens live in a wealthy suburb…well, chances are the water wouldn’t be polluted there in the first place. NIMBY, remember? And the rural poor don’t have much political clout.

The same is true of poor urban neighborhoods, which are much more likely to be downwind of a pollution-belching power plant or factory. Sure, the factory or power plant provides jobs, but it also provides asthma, emphysema, higher concentrations of heavy metals, heightened allergy symptoms, and so on. In the real world, the rich and the poor don’t even get the same quality of air, let alone the same quality of food or water.

A more accurate analogy would mention that the wealthiest member of the supper club would be certain to get an unadulterated meal, entirely free of foreign matter. The folks on the bottom end of the scale, on the other hand, would be eating food that had stuff other than food in it, from insect parts or human hair to trace amounts of lead or other toxic chemicals, up to and including to dioxin. And we haven’t even talked about the quality of service yet.

## Assumption #5: All the People get the Same Level of Service

In the Analogy Café, we tacitly assume that when any of the diners wants a refill on their cup of coffee, they get it. If a diner orders a burger, he will get a burger. If he specifies a cheeseburger, medium-well, his burger will have a slice of cheddar on it and be medium-well done when it arrives at the table. It will arrive hot, and if the diner has a problem with the meal, he can have it fixed at no extra charge (like you can at a real restaurant). The server will make suggestions about which wine or which side dish will go well with the entrée, and may even bring a dessert cart around (depending on how snooty the restaurant is). But that’s not how things work in the real U.S. of A.

We pride ourselves on being a land where everyone is assumed to be equal under the law, but that’s not how we get treated in practice, by the government, or by society in general. But we’re also talking about what we get for out tax dollars, so let’s concentrate for a moment on how the government treats wealthy people differently from poor ones.

A great example of this kind of different treatment of the wealthy and the not-so-wealthy is in food services. I’ve talked about this double-standard in other articles, so I’ll sum up here: a wealthy corporation can sell tainted food that kills people, and be allowed to continue selling food, but an independent entrepreneur who tries to set up a business that delivers wholesome, fresh, locally-grown produce to its customers (and has never even given anyone a case of the runs, let alone caused a death) will get shut down by a government agency. Yes, in the USA, the wealthy can (accidentally, to be sure, but still) kill several people in the course of selling food and still be allowed to continue selling food, while the less-wealthy, who have never even made someone sick in the course of selling food will be stopped from selling food (presumably as a preventive measure?).

Corporations are also able to get away with polluting, and there’s not much someone who lives downstream can do about it. A wealthy citizen can move with relative ease, or hire an attorney to defend his property rights. A poor citizen (who may already have to decide between eating and heating) can’t hire the attorney unless he can convince one to work pro-bono, or for a percentage of any judgment won in court. If the poor citizen can get an attorney to take his case, or if he files the proper legal documents on his own, he will then face the possibility of a SLAPP (Strategic Lawsuit Against Public Participation) suit. These are filed by corporations against citizens who try to assert their rights to clean air, clean water, and so forth (thus making it harder for the corporation to continue polluting or otherwise doing whatever it wants to do). The SLAPP suit takes up the citizen’s time and money, forces him to take time off from work (often unpaid) for court appearances, and otherwise makes his life as inconvenient as possible. Then the Corporation says, “Hey, Mr. Citizen, we’ll drop our frivolous suit against you if you’ll drop your serious one against us. Or you can keep on with your suit, and we’ll ruin you with legal rigmarole. We can afford this fight. Can you?”

The wealthy can figuratively wall themselves off in suburbs with zoning laws to prevent affordable homes from even being built there, and can literally wall themselves off in gated communities, whereas the rest of us must suffer salespeople and evangelists and even the FBI to wander around our neighborhoods and put us under warrantless surveillance. No problem, you might say, but the US 9th circuit court has ruled that if your car is parked in your driveway, and there is no barrier between your driveway and the rest of the world, then the FBI does not need a warrant to put a tracking device on your car. Think about that for a moment. Who is likely to have a barrier between their property and the rest of the world? Not you and me, that’s certain. No, it’s the wealthiest people who build fences around their estates. If you’re not a homeowner, forget about privacy; your car will be parked on a semi-public lot. There is no “reasonable expectation of privacy” (in the 9th Circuit’s words) in a parking lot. Never mind that most reasonable people in the USA do not expect to have their every movement followed by a government agency. In certain other countries, at certain other times in history, perhaps. But not in the modern United States. There are other, more subtle, ways the government discriminates against the poor. One of them is in the way a poor person is blocked from going into business for himself.

I’ve already mentioned the case of a regular citizen of middling income whose food delivery startup was preemptively shut down, but there are other, more widely applicable differences. A higher-income person usually has a college degree, and their job usually involves paperwork, data, and documentation in some way rather than physically building or repairing objects and charging for those goods and services. When a high-income-earner loses a job, he can (relatively) easily set up as a consultant, providing to all comers whatever service he once provided for his employer, and charging a fee for service rather than drawing a salary. Since his work is such that it can be performed nearly anywhere without anybody noticing or caring, he can easily run his new enterprise from his home, without renting a storefront, furnishing it as an office, and driving to it every morning to do his work. A lower-income-earner, on the other hand, is usually involved in providing a different kind of service, like bringing food to tables at a restaurant, for example, or cutting hair, or building furniture to be sold in a store. If a hair stylist, say, gets laid off from his job at a Fantastic Sam’s, he cannot legally set up shop as an independent barber at his home.

Even if he owns his home and has all of the facilities required by the health code in it, owns a barber chair and other necessary equipment, and is willing to have people come into his living room to have their hair cut, he is not allowed to run a barber shop from his home. He must rent a storefront in an area zoned commercial (an expense the higher-income-earner does not have), must travel there to conduct business (another expense the higher-income-earner does not have), and must pay these expenses whether or not anyone comes to have their hair cut. This is very important: even if he owns his home, the tradesman may not use his home as a place of business without breaking the law. And you can forget about the independent woodworker meeting a customer at a coffee shop to conduct a sale, as independent high-income-earners often do.

Finally, many kinds of entrepreneurship are actively suppressed by the government. The folks who wash car windows on street corners, for example, are treated as criminals rather than people performing a service in the hope of a tip. The same is true of buskers (street performers). Oh, they can play their music, juggle their beanbags, or whatever, but if they put out a tip jar, dun dun duuuuun: they’re criminals. Yes, it’s legal to play music on the sidewalk, but it’s illegal if you make an unspoken request for a bit of coin from folks who enjoy your performance.

If we want the Analogy Café to more accurately reflect American society, the bottom four or five earners would routinely get food they didn’t order, or food that was not prepared to order. They would wait forever to get a refill in their coffee cups, they would have hot soup spilt on them without apology, and their meals would often arrive at the table ice-cold. If they were to complain about the coldness of their meal, they might, maybe, get their meal re-heated in a microwave. If they were to try to do something on their own to heat up their meal (hold it over the candle on the table, perhaps) they’d be kicked out of the restaurant. The top earner, on the other hand, would often get little extras—a complimentary glass of wine, perhaps, or free dessert. If his order were botched in some way, the meal would probably be comped entirely. If he happens to have forgotten his wallet, no problem. The manager will happily extend credit (interest free!) until Diner Number Ten can return at his own convenience with payment.

## Assumption #6: Nobody is Leaving a Tip

In the restaurant analogy, the only money mentioned is the money on the bill--that is, the money due for the food and drinks. No mention is made of any gratuity. This is actually the most dishonest part of the analogy. Consider: as you may know, when you have dinner at a restaurant (at least in the US), it is customary to leave a tip of between 15% and 20% of the bill, depending on how happy you are with the service. And as we all ought to know, the income tax is not the only tax Americans pay. We also pay a national tax on gasoline, which is an excise tax. It doesn't matter how much you make, you pay the gas tax at the same rate per gallon (which means the least wealthy pay the greatest percentage of their income). There are also the Social Security tax, which is only paid on the first \$100K or so earned, and the Medicare tax, which is paid at the same rate regardless of income. Then there are corporate taxes, which even conservatives agree get passed on to the end consumer. The bottom five diners aren't a bunch of deadbeat freeloaders, as the analogy would have us believe. They are contributing.

For the analogy to be more honest, it needs to point out that all of the diners, regardless of how much of the bill they pay, regardless of their income level, kick in about two or three bucks for a tip. Further, we need to point out that they're still kicking in the same two or three bucks even though the actual bill is \$20 less than it used to be.

## Punishing Success? How About we Stop Rewarding Failure?

The main argument against a progressive tax system is this: progressive taxes punish success. (They don’t, really, but that’s the argument.) It’s really hard to listen to such an argument without thinking of the many many ways that in the top income brackets, failure is rewarded. We can’t talk about the difference between the rich and the poor without discussing the different treatment the two groups get when they lose a job. It’s true that when the average worker loses his job due to lack of work, he can apply for unemployment (which will give him a small income to cover his bills while he searches for another job). But if he loses his job because of bad performance (is “dismissed with cause”), he can forget about any help from the state. What’s more, he’ll have a heck of a time trying to get a new job. Compare this to what happens when one of our top earners gets ‘dismissed with cause.’ You all know what happens when a CEO runs a company into the ground, causes the stock price to drop, and makes necessary hundreds of layoffs, right? He loses his job, sure, but he also gets maybe a year’s severance pay, and sometimes gets a seven-figure (or more!) lump sum payment. I suppose this is meant to be a punishment for poor job performance? Let me put this in a bit of perspective: if a minimum-wage janitor who did a terrible job cleaning the building were to be given the same treatment when he was fired (adjusted proportionally for the difference in pay) he’d get a \$296.00 check from his former employer once a week for the next two years, in addition to a lump-sum payment of about \$15,000. And all of this would be for doing his job so badly that the company would rather have someone else doing it. Pretty harsh, right? Heck, if that’s what happens when someone fails at their job, why the heck would anyone even try to succeed?

So the next time somebody pulls out the Restaurant Analogy to justify a tax cut for the top income earners, or to support an argument for a flat tax, or otherwise imply that the poor get a free ride and should get off their lazy butts and just stop being poor, you’ll be more able to explain why they’re wrong.

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• Paul Ward 3 weeks ago

Many points to ponder:

How big a role should our government play in it's citizens' lives. Tomas Jefferson believed that a government that is big enough to provide for your every need would also be capable of taking away everything that you have. Almost everyone can agree that our government should provide a basic safety net for the less fortunate, as well as for military defense, education, infrastructure, police and firefighting. In other words the government provides for the things that a normal person cant provide for himself.

After the basic obligations of our government are met through the collection of taxes, does a rich man benefit more from the government than a poor man? If not, why should a rich person pay so much more?

Is protection from excessive taxation covered by the constitution? There is a concept called tyranny of the majority that the framers of the constitution very concerned about. Wealthy people are definitely a minority and the poor are definitely the majority.

Can taxation be thought of as a less barbaric form of slavery? If slaves are taxed at 100 percent, what percent should rich people be taxed? Are we all just property of the government?

What were the causes of the Boston Tea Party? What was the rate of taxation that precipitated the Tea Party? Thank God people are finally asking themselves some of these questions.

For extra points: consider these related topics: How much money does the wealthiest group of people have? Are there any trillionaires ? Look up unfunded liabilities, bankrupt cities, and underfunded pensions that the government is responsible for. If you took every dollar that the richest people had you wouldn't even be able to cover the costs for running the government for two years. Look it up. We are broke and increasing taxes cant fix that.

• Author

Jeff Berndt 3 years ago from Southeast Michigan

So the natural question to ask in response would be this: How many people shifted their businesses to other countries during the years between 1945 to 1975? At that time, the top marginal tax rate hovered around 90%, while today, the top marginal tax rate is closer to 35%. You'd expect, assuming your hypothesis that higher taxes drive rich people to leave the country is correct, that there would have been a mass exodus of wealthy Americans during that time, and that many of them would have come back between 1980 or so and the present, since taxes have come way down since then.

But we don't see data to support that hypothesis. I don't know why, but we don't.

A lot of folks argue that high taxes will make the rich abandon the USA, but that didn't happen when taxes were at their highest. I have to wonder why people continue to make that argument. I imagine it has something to do with Atlas Shrugged, since that's the central theme of the book. Alas, Atlas Shrugged is not a faithful representation of reality.

• Atreides83 3 years ago

This is a very thorough and thoughtful analysis of the analogy, and brings up a lot of privileges that the rich take for granted. However I think it still misses the point.

The point of this analogy isn't whether the rich paying this amount of tax is fair or not. It's how valuable they are to our society, and the danger of treating them like an infinite resource to be taxed more and more. If we tax them too highly, some will inevitably shift their business to other countries with lower taxes. Some will obviously stay regardless, but since they are relatively smaller in number, every shift will have a noticeable impact. And once we have a shortfall, how will we pay for social welfare and government infrastructure?

• clouddragon9 5 years ago

Fair enough. I can respect you and your blog enough not to intrude.

Cheers!

• Author

Jeff Berndt 5 years ago from Southeast Michigan

Sorry, I don't find nihilism worth debating.

Once you've decided that there is no inherent value to human life, as you have professed above, then there's no basis for any morality, whether from Scripture of derived from philosophical reasoning.

Enjoy what you get, I guess?

• clouddragon9 5 years ago

So provide a compelling argument, Jeff.

Why should society writ large make his problem, our problem?

I always ask people to think, not feel, about the last time someone they knew, died. The gas still pumped, the electricity still came on, and there was still produce at the grocery store. Their employer found a replacement, the family did their three days of bereavement leave (or less if they are poor), and people mouth their condolences. The world keeps turning, the machinery of society keeps operating, and life kept on happening.

Trust me; I buried well over 60 before I reached the age of 16. As I reach middle age, I’ve buried so many I’ve lost count. I’ve seen them shot and stabbed, bludgeoned and tossed off buildings. I’ve seen them dead of cancer and car accidents, wasting disease and drug overdose, torture (POW) and suicide. A precious few I’ve even seen die from old age. There is one thing I’ve learned all too well in the process; they didn’t matter and neither do you. They are dead, you aren’t, and you get on with your life.

As I noted in the previous post, in a world of 7 billion, it is a virtual certainty that a replacement is available for virtually anything that anyone does. It is also a fact that anything they might have invented will be developed eventually by someone else. History is replete with ideas lost and rediscovered. Like it or not, humanity is highly redundant and disposable. So why are we worried about expending resources to support something we don’t need, don’t require, and have plenty of in this world? Statistically, 1.7 people die on this planet every minute. In the time it takes you to read this and formulate a reply, a half dozen or more have expired. Did your life change? Did anything really important change? No.

Is the goal to prevent emotional suffering of those close to them? Acting to mitigate the emotional suffering of a small handful of people seems like a pretty poor use of social resources to me. Perhaps the goal is to ensure that someone will care for you if we care for them? What makes you believe you are anything more than a disposable cog in the vast sea of humanity? If there is one thing I’m grateful for, it was the early lessons that no one in life: first, that no one in this world was going to care if you lived or died, and secondly, the power of “not my problem”.

So I offer a challenge. Without relying on moral or religious nonsense, provide a compelling argument why we should care enough to make his problem, our problem.

I’ll look forward to the debate.

• Author

Jeff Berndt 5 years ago from Southeast Michigan

I'm sorry to hear that your extended family said "I've got mine; screw you" when members of it were in trouble.

Given that, I'm somewhat surprised that you're comfortable with "I've got mine, Screw you" as a basis for society.

I fear we will never see eye to eye.

• clouddragon9 5 years ago

Let’s not be naïve here. There are seven billion people on this planet. Anything that anyone does, it is a virtual certainty that a replacement can be found easily enough. Society doesn’t require any individual person; society requires a person in a slot to do a job. The responsibility for the welfare and well-being of the individual rests with the individual, not society writ large. Society doesn’t care and has no incentive to care. Humanity is quite redundant in the macro perspective.

When I was a teenager, my family lost 14 relatives to cancer. Several lost their health insurance, some lost everything. The prevailing attitude across the extended family was quite simple: “They have a problem, we don’t, and we aren’t going to make their problem, our problem.”

We were raised to be independent, to provide for ourselves, and neither give nor expect any help from anyone. Instead of “let’s take care of everyone” (largely at the expense of the successful), let’s instill the same attitude of independence and self-reliance. Create the equality of opportunity via educational opportunity and put the responsibility on the individual to seize those options and provide for their own welfare and well-being.

Yes, in your example, he is now out of work, in debt, and on the street. The answer is quite simple. No money, no insurance, no treatment. Problem solved. He deserves no more and no less than I would expect for myself, my partner, my grown adult children, my grandchildren, or any other member of our highly redundant and disposable collection of human beings. As my father has said for years: “Take care of yourself, and if you can’t, kindly drop dead so the rest of us won’t have to.”

He (the fictional person of your example) has a problem, we don’t, and I see no reason to make his problem, our problem. Quit making it our problem - there is minimal benefit to us for doing so.

• Author

Jeff Berndt 5 years ago from Southeast Michigan

"Why they are not successful is immaterial."

It kind of is.

Someone gets sick or injured and can't work for a while. They rack up all kinds of medical bills, and when they got out of the hospital, they'll be in debt and without a job. So through no fault of his own, not only is he unemployed, but he's \$100K in the hole. According to your position, the correct thing to do is say screw this guy. If his unemployed, newly recovered self can't afford to pay that medical debt and buy food and shelter, that's his own fault. Let him freeze and starve until he ends up back in the hospital to rack up more medical bills.....

"Those making \$66K and up (the top 25% of all income brackets) pay 87% of the tax revenues in this country."

And they take in about 87% of the income as well. Sounds about right to me.....

"That isn't being a selfish child. That is called being an independent grownup and expecting others to do the same."

You dress it up in fine sounding words, but what it boils down to is this: 'I got mine; screw you.'

"It is imperative that we... not confuse EQUALITY of opportunity with SAMENESS of opportunity."

Well, as I explain to my kids, treating people fairly doesn't always mean treating people the same.

For example, telling a kid who has wealthy parents that he's not going to get a free lunch at school while telling a kid whose parents are scraping by on minimum wage that he gets a lunch without paying for it /is/ fair.

Spending money to improve a crumbling urban school while not spending the same money on a glimmering suburban school /is/ fair.

And believe it or not, spending money to ensure that everyone can get medical care whether they have money or not is a lot /more/ fair than the "I've got mine; screw you" plan you tout. Because sick people do get medical care even if they can't afford it, and they often end up never being able to pay for it, and the cost of unpaid medical bills gets passed along to folks with insurance--that is, to their insurance companies--which in turn drives up the price of medical insurance, thus putting it out of the reach of more people, etc etc etc.

"As a society, we are obliged to tear down artificial barriers to opportunity and are morally bound to provide a minimum safety net, but we are under no categorical imperative to ensure that everyone reaches their maximum potential."

Exactly; nobody has the right to 'reach their maximum potential,' what ever that might be. Nobody's suggesting that everyone should get a free mansion with a sports car in the garage. But everyone /should/ be able to get an illness or injury treated without having to declare bankruptcy when they're done, and kids shouldn't be punished for the poor choices (or bad luck) of their parents.

• clouddragon9 5 years ago

It is imperative that we keep in mind the distinction between the two conceptions of equality of opportunity—or, to be more precise, that we not confuse EQUALITY of opportunity with SAMENESS of opportunity.

The former is a moral imperative and a requirement of just government. The latter is a charitable pursuit to which some may aspire and which government is not bound to deliver.

An unjust condition arises when government exists not to secure our rights—that is, to protect that which we have earned and create the conditions that allow us to earn, but rather exist to redistribute property more equitably.

Justice demands that we uphold the rule of law and oppose any legal barriers to advancement. It does not demand that we ensure that everyone be given all they need to fulfill all their dreams. As a society, we are obliged to tear down artificial barriers to opportunity and are morally bound to provide a minimum safety net, but we are under no categorical imperative to ensure that everyone reaches their maximum potential.

• clouddragon9 5 years ago

I don't have a problem in the world paying taxes – for education, for defense, for reasonable protection of the environment, for infrastructure. ..for the many things which no one individual can be expected to pay for on their own. These things do “...support the society that made my success possible.”

But not people. Taking money from those who are successful and redistributing it to those who are not successful is not “...supporting the society that made my success possible.” It is supporting a bunch of individuals who are not successful. Why they are not successful is immaterial. They aren't, and yet those who are successful suffer the punishment of supporting them.

Those making \$66K and up (the top 25% of all income brackets) pay 87% of the tax revenues in this country. We are all very much aware of how much of our tax dollars are spend on social programs, which are not investments in physical things and necessary services, and I won't belabor the subject.

http://www.irs.gov/uac/SOI-Tax-Stats-Individual-St...

It simply begs the question: if a person goes to college, or pursues advanced degrees, or earns a promotion, or starts a business – why is this a windfall for everyone else?

People can pay for their own housing, food, shelter, medical insurance/care and retirement. If they can't, go without. But quit stealing (or forced sharing, whatever you want to call it) from the top 25% who made the effort and made something of themselves to provide for the welfare and well-being of those who didn't make the effort. It isn't OUR job to take care of you, it is yours, unless the individual is so completely handicapped as to be unable to do so. Then and only then do we have a moral obligation to support them. Otherwise, you are on your own.

It isn't about greed. It is about expecting the individual to live or die on their own merits, not have society writ large support them no matter what. It is a philosophy which emphasizes individual responsibility and rewards success instead of punishing it. That isn't being a selfish child. That is called being an independent grownup and expecting others to do the same.

• Keith 5 years ago from Rural Tennessee

It seems that one of the problems with that study is that it's counting benefits as actual cash. I've heard about the study several times and it could be construed that the lesser income family has more disposable income but in reality, they don't have the cash.

I'll stick to working my butt off and complaining about taxes than go on the public dole. At the end of the year, the money is in a bank account with my name on it and, it's real cash. What's even better than that is, I earned it.

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Jeff Berndt 5 years ago from Southeast Michigan

That "study" is a load of garbage. If you really believe that you get more money by earning less money, go and do it. You'll soon find that the premise is nonsense as you try to pay your rent or mortgage and still have enough money to feed your family on \$14K/year.

Getting ahead does take effort. Success does bring rewards. I have no problem paying more taxes when I earn more money, because the taxes I pay support the society that made my success possible. I understand this because I'm a grown-up, not a selfish child.

• clouddragon9 5 years ago

Jeff:

I am sure that you would agree that there is substantial effort involved in making a better life.

Earning a promotion requires taking on additional projects, working more hours than others, and making sacrifices to one's personal and/or home life.

Going to college or pursuing advanced degrees requires similar sacrifice and means huge investments of time and effort.

Starting a business is a major risk; one puts up a great deal of personal capital to fund a start up. Couple that with long hours and years of putting profits (by and large) back into the company, being a business owner represents years of hard work and effort.

Yet it would seem to me that in our system of taxation, each effort to improve oneself, to provide a better life for you and yours, is punished by ever higher taxes. At some level, one has to stop and ask: if the reward for years of hard work, effort, and sacrifice is to have more and more money stolen from you to be redistributed to others who didn't put in the same effort, why bother?

Studies like this one which show that (thanks to government support) a single family household of four @\$14k/year has MORE disposable income than a family making \$60k/year only highlight what many middle class families perceive; that government efforts to address problems aren’t working to do anything but hurt them.

http://www.zerohedge.com/article/entitlement-ameri...

Taxation should provide an incentive to succeed, not a disincentive to trying. Yes, I know, focus on what you have (more money, even despite the taxes) and more security, instead of what is being lost. For many however, it is really hard not to be resentful of paying more...simply because you had some mixture of brains/drive/ambition to achieve more than others did, even though they had the same opportunities (or even better ones that they chose not to pursue).

• Keith 5 years ago from Rural Tennessee

If everybody kept the higher plane, we would have fewer of the problems we face today. In reality, we most likely agree on more things than we disagree on, we just haven't discussed any of them yet. I've read all the posts here and have agreed with you on some of your points. I just never commented on any of those. Here is one I agree with you on, SS is a tax. I believe the supreme court will also agree with that, if I am not mistaken.

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Jeff Berndt 5 years ago from Southeast Michigan

Tell you what, Keith: we disagree on a lot of stuff--that's self-evident. But I gotta say, I appreciate that you disagree like a gentleman. That's all too rare, on both ends of the political spectrum. Thanks for keeping it on a higher plane.

• Keith 5 years ago from Rural Tennessee

There will always be discrimination. Funny thing is, our government through all it's legislation to try to be non-discriminatory, discriminates the most. I don't mean just by race either. As a society we discriminate by class, appearance, race, religion, sex and where we live, to name a few. I find the people that I refer to as "professional victims" to be the biggest discriminators. You see them on TV all the time.

This discussion seems to be way off topic of the original post and would be better served on another hub. Just my opinion of course. Though I may not agree with you on a few things, I found your hub to be interesting. I mean that in a good way.

I like the restaurant analogy mostly because of the the last lines. As I had written before, if the rich guy doesn't show up, everybody else has to pony up. It is my opinion that to tax the "rich" more than others, as a percentage of their income, that is discrimination. I also see it as theft. Unfortunately, if you get enough people to agree with charging one group more than another, it becomes "right" or, legal. People that feel one group should pay more than another group are nothing more than thieves. They can try to cover it by saying it's for the good of another or whatever twist they wish but, they are still thieves. They keep their hands "clean" by having the government do it for them. Again, just my opinion.

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Jeff Berndt 5 years ago from Southeast Michigan

And yet, statistically, white convicts get lighter sentences than black ones for the same crimes; black students are more likely than white students to be suspended or expelled for similar misbehavior; and black motorists are more likely to be pulled over than white ones.

You can say there's no discrimination, but the numbers don't support that conclusion.

• Keith 5 years ago from Rural Tennessee

That again depends on the officer. I will answer your question with another question. If a white officer pulls over a white driver and lets him go with no ticket but, pulls over a black driver for the same offense and gives him a ticket, is he treating them differently because of race? Now, lets change the color of the officer, give the white guy the ticket and let the black one go. Is it the same?

People aren't treated equally because they really aren't truly equal. A driver that has no past tickets or arrest record is more likely to be let go with a warning, regardless of race. Of course this isn't a blanket policy. I made it a point to ask a few patrol officers I know about it.

The way people use race as an excuse or reason for things is for the most part ignorant.

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Jeff Berndt 5 years ago from Southeast Michigan

So you don't think there's any difference between the way white people get treated when they get pulled over, and the way black people get treated when they get pulled over?

White folks and black folks get treated exactly the same?

• Keith 5 years ago from Rural Tennessee

Of course, because I'm white. When all else fails, use race.

'Nuff said.

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Jeff Berndt 5 years ago from Southeast Michigan

I see by your photo that you're a white guy.

'Nuff said.

• Keith 5 years ago from Rural Tennessee

The ticket thing is actually up to the officer. For instance, two years ago, I got pulled over very early in the morning on my bike. I was going fast, the officer didn't know how fast other than he was running 80 to try to catch up to me and I was gaining ground on him. After talking to him for a few minutes, no ticket. I don't own a suit and I was dressed in leather. I have been pulled over a couple times in my beater truck on my way home from work, in very nasty clothes. Again, no ticket.

The pot thing depends a lot on which state you are in and once again, the officer. I grew up in NY and got busted a few times. Only once was I issued a ticket. The ticket cost me \$25 and I did not go to jail.

You have a nice twist on the analogy. The bottom line is, just as in the analogy, if the rich guy doesn't show up, everyone else better pony up.

In my real life, I am working for one of those rich guys that is about to stop showing up for dinner. Everything he has is paid for, he has ample money. He can comfortably live on his savings. I don't blame him. No matter how anybody twists the tax system to call it fair, it isn't.

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Jeff Berndt 5 years ago from Southeast Michigan

"the analogy ASSUMES 10 people are having lunch and that WHEN THE BILL COMES the 10 people divide it between them based on their income. If no one in the restaurant knows how much the ten people make HOW ARE THEY TREATED DIFFERENTLY?

YOU make all the assumptions."

No. I'll try again, with smaller words.

The diners represent the US population.

The bill represents our tax structure.

The restaurant represents America.

The meal and the service represent the quality of treatment the people get from government and society.

Are we clear so far?

Okay.

Now in the Restaurant Analogy, we assume that the diners are treated more or less the same as each other, because in a real restaurant, they treat each member of a party with pretty much the same courtesy and service. Are we clear so far?

Now here's where the analogy fails: The imaginary restaurant is not like American society, because in the real world, wealthy people get treated better than low-income people.

This manifests itself in all manner of ways, many of which I've pointed out in this article.

"YOU know from reading the analogy that there are less fortunate people at the table and you carry that into assumptions based on your own opinions. That the poor are treated unfairly."

Again, No. Based on the information in the analogy, everyone is treated equally all the time (the only exception being how much each person pays in taxes). I know from REAL LIFE that poor people are often treated unfairly, and I think you know it too, whether you want to admit it to yourself or not.

A rich guy with a nice car and a nice suit can get out of paying a traffic ticket (a ticket he can easily afford) much more easily than a poor guy who drives a beater and wears worn-out clothes (and can barely afford the ticket).

A rich kid from the 'burbs who gets caught with pot might get community service. A poor kid from the inner city who gets caught with pot is probably going to jail.

You know this to be true, whether you admit it to yourself or not.

• vince706 5 years ago

"Right, and that's what makes the analogy flawed: it assumes that rich people and poor people are really treated equally in American society, and you and I both know that this isn't true."

the analogy ASSUMES 10 people are having lunch and that WHEN THE BILL COMES the 10 people divide it between them based on their income. If no one in the restaurant knows how much the ten people make HOW ARE THEY TREATED DIFFERENTLY?

YOU make all the assumptions. how about we assume the 5 people that pay nothing, order the most expensive lunch, and the person who pays the most orders a glass of water, to keep the bill at \$100 and save himself some money? only paying \$59 for his glass of water rather than add his own meal to the bill increasing his share due. And of course those 5 always show up for their free meal. But the bad guy is the rich one who doesn't want to pay anymore.

Its the rich guy that's bad for not coming back after getting screwed every time. its not bad for 5 people that can not afford to buy lunch to keep showing up instead of going to work a few extra hours. THEY are not questioned as to why they do no make enough money. THEY are not questioned as to why they would show up to a lunch they can not afford. THEY are not questioned as to why they don't work harder or smarter. No because THEY are not responsible for anything. If that damn rich guy would just give MORE than everything would be ok... and I say "give" loosely since really he has no choice. The poor people voted in politicians that will legally steal more money from the rich guy to redistribute to the non producers.

you make a million and one assumptions as to service and quality because YOU know from reading the analogy that there are less fortunate people at the table and you carry that into assumptions based on your own opinions. That the poor are treated unfairly.

as far as public safety, I have a friend that is a lieutenant for a fire department here. My city is roughly 300,000 population and it is a consolidated government. meaning the county line is also the city line. so if you live on a private estate 12 miles from downtown surrounded by trees and a lake you pay the same tax rate, receive the same services as someone living downtown in an apartment. you vote on the same ballots. unlike most urban and suburban areas where suburbanites have no say on in inner city government because of voting districts. even though they may work in those areas. Ok well he works at different departments pulling various shifts and says the south side (urban) gets tons of calls a day. its mostly lower income, run down housing etc... but our fire department is also EMS. he said if you live in that area and your house catches on fire it will be saved, even though the property is probably not worth it. the response time is very short. Now if you live out in the country (still city limits covered by city EMS and fire, no volunteer dept) and your house catches fire, it will burn to the ground. the response time is terrible because of the distance between departments and houses. so in this case its more beneficial to be poor isn't it? Im sure the insurance is higher, the taxes are still paid for the service...

Also my dad had a mechanic shop on the south side. its crime ridden. but rent is cheap, and they need their old cars fixed. you cant drive 3 blocks without seeing an officer. we have both sheriff and city police patrolling since the gov is consolidated. It costs the city extra money to run patrols in areas having them double covered. and the police stay so busy if a call comes in its going to take longer because he is probably at another scene still. vs the north side, more suburban setting, high end retail, high incomes. where you want to live. police cars are far and few between minus a motorcycle cop running a radar here and there. if something happens its forever before a blue and white shows up. he was probably asleep. Police will tell you, the north side is boring. they drive around checking doors on business to make sure they are locked. if they work south side they don't stop all night long especially on Friday and Saturday. So who is using more resources? poor low income areas? or rich high income areas? and the rich guy who moved out of the crime area and built a wall around his house to protect his family is the bad guy. even though again his taxes pay the police he rarely sees and he STILL pays a private security company to patrol his neighborhood.

just like the government schools he funds and pays private school tuition for his children. Everything a rich person does to better their life is bad. but isn't that why we strive to BE rich? for more opportunities? for better surroundings? for better choices? for more freedom? You cant project your morality n someone else through legislation telling people they MUST give more. people do what they can and what they want. most people, poor or rich are good hearted and care about their fellow man. bringing government into just stifles that natural behavior.

have you ever been involved in a charity car wash? I have for scouts and schools. When you have a charity car wash and you put up a sign that says \$5 car wash people pull in and pay \$5. but most people will suggest to you that if you hold a charity car wash, hold up signs that say car wash for donation. they typically make much more money because now the giver decides how much to pay. and DONATION is much more powerful than \$5. it tugs at peoples hearts and they feel they are doing good. we want to do good. but we also want to be left ALONE! and to feel secure. that is why rich people separate themselves. not because they are a bunch of greedy pompous asses.

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Jeff Berndt 5 years ago from Southeast Michigan

"My point is I pay an overwhelming fair share of my income to all income taxes, fed, state and local."

So, you're adding in a bunch of extra stuff to exaggerate your tax burden, which you completely ignore when complaining about the folks who pay "no taxes." If you include it when calculating your own burden, you have to include it when you calculate those of others, otherwise your argument is weakened by the disingenuousness.

"On the dividend side, it doesn't matter what percentage of a corporation you own, 100% or 5%"

So you seriously don't see a difference between the guy who built the company and takes it public, and the guy who buys into the company afterward (not actually doing any of the work that brought the company to this point)? I think most people would see a difference, and the difference we see is pretty big.

"About SS. IT IS NOT A TAX!!"

I suppose you could argue that it's more of a federal pension plan, sure, but you can't deny that the Social Security fund has been used to pay for other things (like some corporate pension funds have been...). Therefore, I don't see a problem calling it a tax, since it's being spent on not only keeping retirees solvent but also on things like various pork projects and blowing people up in central Asia.

SocSec is most assuredly NOT bankrupt. When the USA pays back its debt to SocSec (with interest) it will be solvent far into the future. Of course, now that so much has been borrowed from the general pension fund, it's possible that America's conservative leaders will try the same flimflam that some corporate leaders have used: "Whoops, your pensions are underfunded, so you little people now have to take a hit while we who looted your pension fund to pay for other things enjoy the lucre."

And folks have stopped falling for that.

• Tim 5 years ago

And you are right, it is less when you incorporate. And there are many reasons to incorporate, elliviation of certain liabilities for one. So you made my point in observing yor after tax cash flow is less, yet everyone screams when they see someone's person 1040 that receives much of their income in the form of dividends. It is less and their true effective is not 14 or 15% as Buffett would have people believe that he pays a lower rate than his secretary. As you observed correctly, his after tax is lower.

• Tim 5 years ago

Jeff. My 50% number was including fed, state and local. Not just fed. Of course with a 34% marginal federal, it is impossible to pay 50% in federal income tax. My point is I pay an overwhelming fair share of my income to all income taxes, fed, state and local. As I said, currently just about 45% in fed, state and local income tax. About SS. IT IS NOT A TAX!! So therefore shouldn't be calculated into lower incomes effective in order to demonstrate its regressivity. The average SS earner gets EVERYTHING back PLUS interest their first 3.5 years on SS. Therefore it is not a tax it is an outright entitlement and completely unsustainable. With current life expectancies well past that 3.5 yr number, you can see why it is bankrupt and unsustainable. On the dividend side, it doesn't matter what percentage of a corporation you own, 100% or 5%, the numbers come out the same you own that percentage of EBITDA, and therefore part of your true tax payments don't show up on your personal return.

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Jeff Berndt 5 years ago from Southeast Michigan

Hi, Vince,

"...in fact the analogy dictates the only DIFFERENCE is when the bill comes and the patrons split the bill based on their income. Something only the ten of them know."

Right, and that's what makes the analogy flawed: it assumes that rich people and poor people are really treated equally in American society, and you and I both know that this isn't true.

Again, this isn't just about being able to afford to buy more things; it's about the overall level of service you get. The cops come to wealthy neighborhoods a lot more quickly then they come to poor ones. Ambulance drivers, according to an EMT friend of mine, won't even go into certain areas without a police escort, and will wait until an escort is available before responding to a call to such an area.

So the rich guy who has a heart attack at home gets the ambulance right away, but a low-income person who has a heart attack at home is going to wait a while. Fair?

"Not to mention that truly wealthy people pay the tax base public schools in their district which is not deductible yet send their kids private school and pay tuition too. Yet receive no benefit of the public school."

Wrong. Everyone benefits from the public schools, whether you or your kids attend them or not. An educated populace is a public good, much like a robust power grid or a competent police force, and paying taxes to support those things is the price of membership in a civil society.

Of course, lately, some of the wealthy are deciding that "I've got mine; f%\$# you" is a viable public policy, so rather than support public institutions to improve life for everyone (including themselves) they're increasingly searching for private solutions and insisting that they shouldn't have to support public ones. They send their children to private schools and work to defund public ones. They move to gated communities with private security and vote to defund the local police department. And they buy backup generators and work to defund programs to improve infrastructure. Incidentally, such behavior is common in the 3rd world, which is where our penchant for tax cuts and deregulation will take us if we don't come to our senses soon.

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Jeff Berndt 5 years ago from Southeast Michigan

Hi, Tim,

Thanks for stopping by. You seem to be upset about how much you pay n taxes, but your arguments are inconsistent.

You complain that you're paying nearly half of your income in taxes, which astonishes me, because it can't possibly be true. The tax on earned income is progressive, yes, but you* only pay 35% on income above \$212,300. That is, if you earn \$212,301, you'll only pay 35% in income tax on \$1 of your annual income.

*You being a married couple filing jointly. I don't know if you're married or if you file jointly with your spouse, but a lot of Americans are married and do file jointly, which is why I used that as my metric.

You complain that with state, local, FICA, etc, your tax rate is even higher (which, unless you have a truly abysmal accountant, I don't see as even possible) but you ignore the state, local, and FICA taxes paid by the folks who don't earn enough to pay 35% income tax on any of their dollars. You also overlook the fact that you only pay SocSec on the first \$106,800 you earn in a given year, and pay no SocSec or medicare taxes on ANY income earned from dividends or other capital gains.

Your argument about dividend income is interesting, but you leave out an important factor: a business pays taxes on profits not on "income." If the balance sheet shows a break-even year, then the tax burden is significantly lower than any year when the business shows a profit (of course, if it's a publicly traded company, it's going to want to show profits to attract investors).

So, you own a company that turns a \$100 profit (that's after you've paid yourself a salary, is it?) and then you want to incorporate. You're the sole shareholder? Okay. Your company turns a \$100 profit. Great. That's after salaries are paid, mind, and that's going to be important in a moment.

So the company pays the corporate income tax on the \$100 in profit, upon which the company is taxed. I haven't looked into how progressive corporate taxes are, but if they mirror the individual tax rates (and why not; corporations are people, after all) then they won't pay 35% on all of their income. They'll pay 10% on the first, say, \$17, 15% on the next \$52, 25% on the next \$70, 28% on the next \$72, and 35% on everything over and above that. Given the above, the effective tax rate for our imaginary corporation is more like 17.25%, not even close to 35%. So your assumption that the company's \$100 earnings are going to be taxed at the maximum rate is flawed. Also, do corporations pay into Social Security and Medicare as part of their tax returns? If they're legally people, then yes, they probably should--but given the inconsistencies in corporate tax policy, they probably don't.

So now the company incorporates and has one shareholder--who doesn't get a salary and is paid only in dividends from his shares? What does he use to buy groceries?

If he gets paid a salary of \$100 he'll pay an effective income tax rate of 17.25%, and he'll also pay 4.2% SocSec on that income, and 1.45% for Medicare. That brings his effective tax rate to 22.9%, leaving him \$77.10. If he gets paid only out of dividends, he'll get \$82.75. Now he'll be taxed, at an effective income tax rate of 12.9% (because he's only paying the 25% rate on \$13.75 of his income instead of \$31), and adding in SocSec and FICA he pays an effective rate of 18.58%. leaving him \$67.37, which IS less, which raises a question: why the heck would he want to incorporate?

Of course, your example uses a very narrow slice of people who get dividend income: not very many of them are sole stockholders in corporations, I imagine. Most of them are folks who had some extra cash and invested in the company without actually working at it, or who get partially paid in shares of the company as a part of their total compensation package (which includes salary, perhaps a bonus, perhaps an expense account, etc...)

You may be surprised to know that I agree that corporations should not pay income taxes--not because it's somehow unfair to tax both corporate profits and investment income, but because a corporation can find ways of passing the cost of its taxes down to its customers, who ultimately bear the real burden.

But as for your final arguments, you insist that the wealthy "pay it ALL," but do you think we've forgotten that at the beginning of your comment, you made a big deal about state, local, and payroll taxes, which the folks who end up with a 0% income tax burden DO pay, and sales and other excise taxes, which are actually regressive--they fall harder on those with lower incomes?

• vince706 5 years ago

Seems the writer makes all the ASSumptions. He assumes that the income of all the ten patrons is known by everyone in the restaurant before they arrive, order, consume, and pay. So everything will be changed accordingly. Like different menus will be given, different seating, different waiters, different cooks, different food, as well as quality and service.

When in fact the analogy dictates the only DIFFERENCE is when the bill comes and the patrons split the bill based on their income. Something only the ten of them know.

I don't understand bitterness towards rich people.

I live in a medium sized city. Roughly 300,000. Pop. Its a consolidated government so the county lines are the city lines. Meaning the rural areas and urban areas are not separated by taxes or schools or police etc... it also means when a new high school was built on the north side of town to accommodate growth in a mostly high income area, children were bused from miles away in low income areas to attend the same school. Yet do not pay taxes. Not to mention that truly wealthy people pay the tax base public schools in their district which is not deductible yet send their kids private school and pay tuition too. Yet receive no benefit of the public school.

The depths this article goes to tear apart an analogy is mind boggling.

No one denies the differences between wealthy and poor. Just seem you deny poor are responsible for anything. Life is just so UNFAIR to them so tack a few more tax dollars on a rich person.

After all it is common knowledge that the only way a poor person can rise up is if a rich person is punished. What's that called again? Socialism?

• Tim 5 years ago

Jeff: A few key points from a 1%'er and Wall Steeter.

The overwhelming majority of us are wage earners, that is we get a w-2, therefore have very limited options for deductions and drastically get sucked into AMT, so on years, especially when I earn well into the 7 figures, approximately 45% of my income is paid in fed, state and local taxes, so your comment about "a mere 35%" is insulting and mis- leading. One, because it is mathematically incorrect and two because it implys I don't pay my fair share. 45% is not only more than my fair share, it not only does not include , SocialSecurity, my property tax, any sales tax I pay when I purchase something and on and on and on. It never ends and all levels, Fed, state and local get plenty of money to perform their functions. I certainly resent when they come to me and say, "why so selfish, can't you just pay a little more". Frankly NO. I GIVE ENOUGH. Furthermore, it was under the Clinton admin, when I was unmarried, didn't own a home and like now

Living in NYC. Under those marginal rates, approximately 50% of my income went to Fed, state and local taxes. Now it's at 45% and all I hear is what's wrong with going back to rates under Clinton. What? A 50/50 partner with government. How is that fair?? The system is progressive and yes, 50% of the 120mm tax returns pay 0% and the top pay the taxes. For the record, I agree with the carried interest augment, and agree that loophole shoals be closed. Furthermore, if you recall, Hillary was a BIG proponent of closing that loophole until she became a senator from NYS and realized her bread was partially buttered by New York and CT hedge funds. About the 50% remark. Yes, some of that is elderly and the true poor. Make no mistake I thoroughly believe we must take care of those in our society that are in true need. My point is, currently the bar is too low in order to qualify for governmental assistance, as evidenced on not only the numbers, but the percentage of the population on Medicaid, food stamps, disability insurance and outright block grants and welfare. For instance, we currently have 25mm elderly on Medicare. In 2008 there were 58mm people on Medicaid and that has now swelled to 70mm. The affordable care act want to insure an additional 40mm of those currently uninsured. Do you see where I'm ging with this? If we all can agree that no insurance company would insure an older person, we can agree that we have to take medical care of the elderly. However, when you add the rest of the numbers it would be 110mm people on Medicaid and/or Affordable Care. Add that to Medicare and half the entire population with health care on the backs of the other half. You see how that is mathematically UNSUSTAINABLE!! We cannot continue like this. IT IS A SPENDING PROBLEM, NOT A REVENUE PROBLEM, as I think I have demonstrated being I am the NORM for taxes. Yes there are some examples of some pockets of wealth that don't pay a fair share. But VERY SMALL. For instance, dividend income, contrary to your analysis and Warren Buffett is no taxed unfairly. What is mathematically incorrect is stating Buffett and Romney pay 15% in taxes. Let me try to explain how disingenuous it is for Buffett to state that. You must add the dividend and corporate rate together in order to get the true rate. The effective stated on Buffett or Romney's tax return is incomplete due to the fact that the full amount of taxes they are paying are not all on their tax returns, due to the fact that the own all or a part of the income that is taxed and reported at the corporate level. Let me put it this way. If I start ACME Widgets and make \$100 in pre-tax geoss income, or EBITDA and let's for argument sake assume that it is max and qualifies for top rate of 35%. Well, my after tax income would be \$65 dollars and my effective would be 35%. Would everybody be satisfied then? Well, let's say the next year I decide to incorporate and I own 100% of ACME Widgets, or 100% of and all the stock, and let's say again ACME earns \$100 dollars. Again EBITDA is \$100, ACME pays \$35 in corporate taxes and then distributes \$65 to its stock holders, ME, then I pay 15% of that \$65 in personal income tax. HOWEVER, now my after tax income and cash flow is \$55.25, not \$65, my income is lower and EVERYONE screams, "Tim only paid 15% of his income in taxes!". Do you understand? The Wall St Journal and every legitimate accounting organization does an editorial and article on this every time Buffet tries his argument, that he pays a lower rate than his secretary. NO HE DOES NOT. On to those that don't pay. It is called the Tax Gap. It is estimated to be about \$250 billion dollars a year and 80% of that is made up of farmers and small businesses, who under report and/or flat out hide cash transactions. As I said, we must take care of the neediest amount us, we cannot continue down the path of 50% of tax returns paying ZERO. We must expand the base. The wealthy pay it all, that includes Romney, Buffet, (he is completely disingenuous, as I have proven, and I am certainly included in that group that pays his fair share and sick and tired of being told I don't pay enough. The budget is \$4t, we take in \$2.5t, so we create a \$1.5t deficit. 60% is entitlements, 20% is defense, 10% interest and another 10% to run the government. 60%!! Is entitlements. That is why we are in this hole. SPENDING, not revenue.

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Jeff Berndt 5 years ago from Southeast Michigan

Of course you'll enjoy the fruit of your investment, you will get your capital gains.

Is it right that we get taxed less on income we get from selling stock or getting dividend checks than another person gets taxed on income from doing actual work (the work that makes our investments profitable)?

Nope.

• H Rod 5 years ago

I guess non of you are rich. The analogy is an analogy and simple. As a business man you are taking risk in your investments, the poor, good or bad, does not take any. If I'm taking a risk of losing my savings, is it right that I don't enjoy the frut of my investment.

• Keith 5 years ago from Rural Tennessee

I found the twist on this analogy to be interesting. Going by my tax rate I am in the middle, in other words, I do actually pay federal income tax without receiving more back than I paid in. I live in a very rural area that is economically diverse. I have neighbors that make barely above minimum wage and others that are in the top one percent. Almost all of us own our land. I think there are simply too many assumptions on Jeff's part and it may be painted a bit more on the negative side than what I see in the area I live in.

My regular job is in what I would call a medium sized city and I have lived and worked in large cities over the years. The poor in the cities seem to consume more services than others from what I have seen. The poor where I live typically tough it out without using food stamps, police and so on. ( I do know and am friends with a lot of these people) I also work on the side for some of the wealthy people in this area. I build them fancy things they have no need for but, like to have for when the other execs come over for parties. What I have found over the years is, the more they pay in taxes, the less they put in my pocket. Actually, the more they think they will be taxed more, the less they call me.

• Oasis418 5 years ago

Yes, I think we are in solid agreement about the role of government.

Also, I don't strongly disagree with anything in your last post, but I do think that it's impossible to have an "impartial, disinterested" government unless it's a totalitarian rule of geographically and culturally separated constituency (an imagined rule by ultra-powerful extra-terrestrials, or more realistically the closest might be Britain's rule over some of their dominions). As it stands in the U.S. we pride ourselves on a "government of the people, for the people" which is necessarily not impartial or disinterested. But I agree that it is in the interest of the majority (the strong) to make every effort to "...ensure that private parties neither defraud or coerce each other in their dealings." I also think that includes making every effort to ensure that taxes won't favor one party over another. Taxes are, of course, a coercion; some even consider the sixteenth amendment fraudulent. It's generally acceptable as is, but the more unfair the tax codes become, the less likely the defrauded will allow it to continue.

Final point, I strongly agree with your last point; well said. The saddest part is that the voters allow it to continue, most likely because they are duped into believing that actions are in their best interest.

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Jeff Berndt 5 years ago from Southeast Michigan

It sounds like we're in agreement on the necessity of government, and even on envy being a big part of what makes government necessary, but we're not quite on the same page as to what role envy plays in that necessity.

I'm thinking that we need government in part because people tend to be envious, and when a strong entity decides to take what a weaker entity has (whether it be a wealthy person deciding to encroach on a poorer person's land or a whole bunch of poorer people ganging up on a rich guy and taking his stuff) we turn to government to either stop the bad behavior as it's happening, punish the miscreant(s) after bad behavior has happened, or (best case) deter people from behaving badly in the first place.

Yes, government is "The Strong," but it's to be hoped that it's an impartial, disinterested "Strong," and will act to ensure that private parties (be they individuals or groups) neither defraud nor coerce each other in their dealings.

Sadly, monied interests (individuals as well as organizations) have been allowed to become very influential in government such that the private interests of government officials are often in conflict with their public duties, and this is technically legal.

• Oasis418 5 years ago

I could type out a Leviathan like description of the evolution of government, but in the interest of brevity, let's just consider the established purpose of the U.S. government: Protect/provide for justice, domestic tranquility, common defense, general welfare, and liberty. I maintain that none of that is necessary without envy. Injustice because someone is trying to take something that someone else has. uprising because one group wants what another group has. defense against those who would take what we had if they could. general welfare is in question only because someone wants more. The only reason to protect liberty is because someone is trying to take it away. So, if government isn't based on envy, what is it based on?

In parentheses you have a somewhat incomplete picture which when analyzed will shed some light on the original argument

"...we need government to keep the strong from taking away what the less-strong have..."

You seem to separate "government" from the two parties being the "strong" and the "less-strong". However the government is "the strong" (strong isn't just brute force, though the government has plenty of that to back it up.) So it's necessarily the strong protecting the less-strong. And that's how it always is. Always the benevolent strong must protect the (often ungrateful) weak. Which is why I must disagree, with some points made about the irrelevance of charity. The wealthy (i.e. strong) should be encouraged to make the independent decision to be charitable. to paraphrase an anarchist: "...although it may be the duty of the strong to provide for the weak, they prefer to do it out of generosity. They will never endure a [demand]" (Poudhon, 1840). I'm certainly not advocating anarchy, but he makes a good point about human nature and altruism.

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Jeff Berndt 5 years ago from Southeast Michigan

I don't think I agree with that, Oasis418. A progressive tax policy doesn't have to be based on envy (though it /can/ be, certainly).

I also don't think that government is only necessary because of the desire to have what someone else has (unless you mean that we need government to keep the strong from taking away what the less-strong have, in which case I agree).

• Oasis418 5 years ago

A progressive tax (or tax period) is, by definition based on envy. Envy, defined by oxford dictionary: desire to have a quality, possession, or other desirable thing belonging to (someone else). I could go so far as to say that government itself is based on envy. Without the desire to have what someone else has, there would be no need for government or a way to fund government. Jeff, I'm not trying to argue your point, I'm arguing the narrow minded point "Tax policy based on envy is irrational". Of course it is not irrational, It's absolutely necessary!

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Jeff Berndt 5 years ago from Southeast Michigan

"there doesn't seem to be any thought given to how much the bill should be."

That's because the bill, for the sake of argument, comes to an even \$100. It doesn't matter what the "real" cost of the meal is, because the cost in the analogy was chosen for ease of math only, not to accurately represent the amount of real dollars paid in taxes on earned income. Duh.

"Isn't the question of how much the meal should cost more important in the real world of government policy today than how much the rich should have to pay?"

Well, the question of how much the meal should cost is important, but bound up in that question are others, like "What kind of meal should we be getting?" and "How are we going to pay for it?"

"Isn't it just as silly to caricature the rich as evil, greedy exploiters as to caricature the poor as lazy deadbeats looking for a handout?"

Yes, it is--that's why I haven't done that.

"Tax policy based on envy is irrational."

Agreed, and that's why I haven't advocated such a policy. Tax policy based on lies is equally irrational.

• Dan S 5 years ago

I find it interesting that while you tie yourself up in a pretzel to make all sorts of irrelevant assumptions in your "refutation" of the restaurant analogy, there doesn't seem to be any thought given to how much the bill should be. (In a free market restaurant, the bill is whatever the market's willing to pay. In government, the bill is based on the menu the voters choose.)

Isn't the question of how much the meal should cost more important in the real world of government policy today than how much the rich should have to pay?

Isn't it just as silly to caricature the rich as evil, greedy exploiters as to caricature the poor as lazy deadbeats looking for a handout?

Tax policy based on envy is irrational.

• Kevin 5 years ago

I specifically ran into this article after reading the restaurant analogy and asked myself if there was anything not being taken into account. First off, I appreciate that your rebuttle was built around facts. As a conservative I can appreciate an article like this that actually breaks down some logical explanations as to why we have a progressive tax system.

Some comments first about some of the rebuttles to your rebbutle-article. Honestly, if a rich man is charitable or not, what in the world does that have anything to do with anyone else? I firmly and religiously believe that a person has a moral obligation to be charitable. I also firmly and religiously believe that I do not have any right to make anybody be charitable either. In fact, I believe it is morally wrong for me to do so. You can argue that the rich only say that they donate to charities but they really dont, etc etc etc. In the end whether they do or not is nobody´s business but their own. If I vote to impose a law that will take away from their money and give it indirectly to the poor, I am legally robbing them (that legally doesn´t make me feel any better about myself). I truely believe in a world where the "haves" will help take care of the "have-nots" to the point that there will be no "haves" or "have-nots" altogether, but that will come about because of voluntary, not obligatory charity. You argue that the poor are also chipping in, although arguably not as much. Well, I don´t even think the poor should be obligated to chip in either. It´s the principal that´s not right. Poor or rich, forced charity is wrong.

On to your article. It really put me in a spot because many of the differences in privelages that you mentioned come from things that in my opinion should not exist in the first place. You mentioned the public school system but didn´t want to touch whether they should exist or not , rightfully so because your article wasn´t about that. I won´t get into it either, to be fair, but no, I don´t believe anyone (rich or poor) should be obligated to give a cent towards another person´s education either. A good chunk of the richest men seem to be high-school or even middle school drop-outs anyhow, so it looks like public schooling didn´t help them too much... Fact is, public schooling does exist. You mention that public schools in rich areas are better in various aspects, and I agree, but here´s something that throws off the statistics. How many rich kids actually go to public school when compared with poorer kids? How many rich public schools are there when compared with poor public schools? You argue that the rich enjoy these better public schools, and since the system is government funded, the fact that they pay more in taxes toward public education is justified. Well how about the fact that a far greater percentage of these rich people´s kids even go to public schools in the first place. Shouldn´t that bring their taxation back down again? Let´s take 100 kids, 10 of them being rich. Of the 90, 80 go to public schools. Of the 10, only 5 do. These are rough numbers but I´m certain they´re accurate enough to make my point. There´s a much greater chance that the rich guy is putting money into a system that doesn´t even touch his children than there is that a poor person is.

Your comments about public services such, power plants, incinerators, etc. are all valid points, in my opinion.

I couldn´t convince myself to agree with your opinion of a rich man being unemployed compared to a poor man being unemployed. Since we´re talking about jobs here there are too many varieties to state that the rich work in offices and the poor have to go somewhere. The government considers me poor, but I work as a self-employed teacher online at my own house. My dad gets along fairly well; he has to drive an hour and a half every day to go work on fighter planes at the airforce base everyday. If they lay him off he can´t exactly come home and start building airplanes here. I just talked to a friend I haven´t seen in a while. He´s doing great, making \$50 dollars an hour working for the government at a solar energy plant. He has to work out in the sun all day. These are just a few examples, but saying that a poor man is obligated to go through so many extra inconveniences was not well founded.

I see in some people´s rebuttles that they are offended because they work so hard for their families and don´t like people calling them lazy. I won´t, because I´m one of them and have yet to get on top like I hope too. However, this is one of the very things that rich people have been teaching their kids for ages, and that´s that hard work is only part of the equation for economic success. We want to punish them because they were financially smart in addition to being hard workers when we are still poor because we only learned the latter.

In short, and sorry about a few random rants, your article was well written and you made some good points. I only found myself agreeing with about half of it, though, for the reasons mentioned.

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Jeff Berndt 5 years ago from Southeast Michigan

Hi, Terri, thanks for stopping by.

Looks like your comment has been up for awhile, too. Sorry for leaving it sit so long.

Nobody (nobody smart, anyway) wants to punish people who succeed, despite what the radical right would have us believe. But everybody (everybody smart, anyway) wants the rules for the wealthy to be the same as the rules for everyone else.

There's nothing wrong with being wealthy. However, I object when someone uses their wealth to rig the system in their own favor.

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Jeff Berndt 5 years ago from Southeast Michigan

Hi, Oasis,

Sorry--your response has been here a while and I've been away. It's a good response and deserves a good answer.

" I don't think that Europeans, "don't want to improve their quality of life". On the contrary, I said that the reason socialism works for Scandinavians ... is because as a culture, they value the stability of their current high quality of life more than opportunity."

Ah, I see. Sorry for the misinterpretation. But do you mean to imply that stability and opportunity are mutually exclusive? I don't think they are, especially considering Ericsson, Ikea, and Lego, all of which are Scandinavian companies with worldwide market share.

"[snip]The creation of that corporate super class was the majority of the economic growth we enjoyed in the 50’s and 60’s."

And yet during the 50s and 60s, everyone (well, everyone white) was enjoying the benefits of the expansion. Everyone's wages were going up at more or less the same rate, more and more people were able to go to college, etc. Everyone's standard of living was going up. These days, most folks' economic situation is either staying flat or declining.

"My comment about the hope for Romney was a little jab assuming (apparently correctly) that you are an Obama supporter."

Well, it's not so much that I'm an Obama supporter. Rather, I think that a Romney presidency would be a catastrophe.

"To your colleague from Delphi, it sounds like a 101 business course might help his understanding of unit cost."

Well, Delphi went bankrupt about a year after that conversation, so perhaps J.T. Battenberg would benefit from that course more than my immediate coworker.

"I don’t think tax increases would improve the economy; nor do I think that more tax cuts will help."

Well, I'm glad to hear you agree that more tax cuts won't help. We've cut them quite a lot, and we have yet to see the jobs that were meant to be created (unless you count jobs created outside of the US).

"I do think that too progressive of a tax is unfair."

Well, I guess anybody would agree with that. The arguments will come when you try to figure out how progressive is "too" progressive.

"When the 10th man decides he is no longer going to eat at the restaurant with the other nine, it is highly likely that he will order out for Chinese…"

Sure, but where's he going to go? I mean, every other Western democracy has a more progressive tax structure than the US does, along with socialized medicine, subsidized education, etc, etc, etc. Or were you suggesting that he would take his money and move to China? Where they still have quite a lot of communism?

• Terri Meredith 5 years ago from Pennsylvania

Hi Jeff, this is a great article and I'm going to be sharing on FB, etc. I have to say, I've taken great offense to some of the comments a few idiots continue to make..(cough, cough, Mike, cough). I know far too many people who have worked hard their entire lives, put away money for retirement, and struggled to purchase a home for their old age. These same people raised children and educated them. They put in long hours at work with the understanding that hard work would pay off through the years. Instead they've been taxed out of their homes, downsized out of a job because jobs were sent overseas, and made sickly because the wealthy polluted their towns while the government looked the other way. They are still able to work and earn a living, but there are no jobs to be filled by mid-level employees over certain ages. I could go on and on about personal things I've witness over the last 20 to 30 years.

I don't agree that high earners should be "punished" for succeeding. What I object to is the way the tax rules change to accommodate higher incomes. Closing the loopholes that allow them to pay ZERO is all most of us are asking. If they want to keep loopholes...then let them apply only until the tax liability is reduced to 35%.

People like Mike can go suck an egg. I love hearing about how they contribute \$ to charities. I wonder if any of them have actually given of their TIME to those who are the recipients of charities. Perhaps if they had to rub elbows with real people, they could get a clue.

• Oasis418 5 years ago

Jeff,

I have spent quite a bit of time in Europe while living and working here for the past three years. I visited several countries on several occasions while conducting training and exercises throughout The continent. My limited knowledge of Scandinavian culture comes from talking in depth with Norwegians during several weeks of winter training (lots of sitting on mountains discussing politics and economics). The Norwegian military does not get a pension like the U.S. military because, "we don't need it, the national pension is enough to maintain our lifestyle throughout retirement". A taxi driver said, "I'm o.k. with paying three fourths of my [\$300,000] salary because the benefits I receive make it worthwhile." \$75,000 take home pay (in Krone of course) roughly approximates \$20,000 take home pay in the U.S. when adjusted for cost of living. I don't think that Europeans, "don't want to improve their quality of life". On the contrary, I said that the reason socialism works for Scandinavians [not Europeans] (who already have a very high quality of life for the vast majority), is because as a culture, they value the stability of their current high quality of life more than opportunity. Likewise, the only proponents of socialism in the U.S. are those that seek to maintain social hierarchies (or those who don't realize that socialism is designed to do so). Socialism, and a progressive tax to support socialism, is not necessarily a bad thing. It just doesn’t compliment national values of the U.S.

No one likes bank fees, but when the interest rate is forced to near nothing, the banks will seek compensation for services and will seek that compensation in a way that deters higher cost (i.e. accounts with little or no funds). Look into why interest rates are so low and you'll find that the liberal-elite fed promotes reduction of the penalty for debt rather than increase of incentive for savings (again keeping the not-rich in their place). The small tax on Capital gains that you mentioned is very progressive. Why re-tax money already taxed when earned? Because, according to socialist elites, people who earned [too much] money should be penalized for using it to create more wealth; they might get out of the labor class!

You mentioned a 90% maximum tax during the middle of last century when our nation’s economy grew the most. There are two major problems with this argument for a progressive tax to help the economy grow. First of all, no one in their right mind would pay the maximum tax. Tax law, while complicated, was relatively easy for sufficiently affluent people to navigate with the help of a tax attorney. Regan cut taxes far less than generally assumed. What he did was promote the simplification of the tax code to look like tax cuts. Don’t get me wrong, Regan was a great president, but liberals give him way too much credit for his economic promotions. Secondly, what high taxes for affluent individuals in the 50’s and 60’s really accomplished was the opposite of what progressives would have liked. While no individual would willingly take \$40k from a \$400k paycheck giving the other \$360k to the government, they may gladly take \$18k, pay \$18k to the government, and re-invest the other \$364k back into their corporation (which would own their home and car, pay for their driver, provide paid vacations, etc.). What this did, rather than deter an “aristocracy of wealth” that Jeffersonian economic liberals would have you believe, is create the "aristocracy" of giant faceless corporations that we know today. The creation of that corporate super class was the majority of the economic growth we enjoyed in the 50’s and 60’s.

My comment about the hope for Romney was a little jab assuming (apparently correctly) that you are an Obama supporter. To be quite honest, I don’t expect Santa Claus to pay for education, nor do I expect the government to pay for a sufficient education. I expect public education to produce a literate working class. Admittedly we are starting to see some issues with that as technology advances and vocational skills require more than a traditional public education. However, if someone truly wants an education that will allow them to excel beyond the labor force, they will never get that for free from the government; it is not in the ruling elite’s best interest.

To your colleague from Delphi, it sounds like a 101 business course might help his understanding of unit cost. But that doesn't quite translate to tax reform. I don’t think tax increases would improve the economy; nor do I think that more tax cuts will help. I don’t honestly think that taxes, progressive or not, have much bearing on the economy. I think government spending has much more of an effect. However, I do think that too progressive of a tax is unfair. The analogy of ten men dining out is, of course, over simplified. For a degree in economics and tax law, one would need to spend much more than a few minutes reading an anecdote. However, for an over simplified, layman’s description of progressive tax, “Ten men dining out” is fairly accurate. When the 10th man decides he is no longer going to eat at the restaurant with the other nine, it is highly likely that he will order out for Chinese…

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Jeff Berndt 5 years ago from Southeast Michigan

Hi, Oasis,

Yes, Mike had one or two wise words: Hard work and thrift are important.

The rest of his comment wasn't very wise at all, I'm afraid, and really, neither is yours. Have you spent any time in Europe? You seem to think Europeans don't want to improve their quality of life. Have you met any?

Our current progressive tax scheme does not make it difficult to earn one's way out of the laboring class; rather, the fact that banks charge you a 'maintenance fee' if your account balance dips below a certain threshold, the fact that brokerage fees eat up your investment unless you're investing more than a couple hundred dollars at a go, and the fact that the lower-paying jobs have no benefits attached to them are all factors that make it harder to earn one's way into prosperity, and take advantage of the miniscule tax on capital gains income.

You hope Romney's election will help to educate would-be entrepreneurs like yourself? Who will pay for that education? Santa Claus? We've had a decade of tax cuts so the top earners (the "job creators") could create jobs. Well, the jobs got created, but they got created in China. Of course, the Right will insist that the solution is to cut taxes even further. It reminds me of something a colleague said back when I worked at Delphi: "We lose money on every battery we sell, and their solution is to sell more batteries? How dumb is that?"

Well, we cut taxes to stimulate the economy, and the economy tanked. What's the solution? Cut taxes even further? How dumb is that?

And if you'll recall, back when we had that broad prosperity in the middle of the last century, to top marginal tax rate was close to 90%.

• Oasis418 5 years ago

Mike has some wise words. I'm not at all wealthy right now, in fact to use the analogy, I'm one of the four that doesn't pay for my dinner (after filing my return of course). One of the best things about the U.S. is that I have a reasonable hope of improving my financial standing (not quite as reasonable of a hope for someone in my situation in a country like Norway, Denmark, or Finland). To answer a question posed earlier, yes, we should hold the U.S. back from becoming a socialist nation like Norway, Denmark or Finland. Scandinavian countries oppress (sorry, safely maintain) their labor classes by fully supporting them with social programs. It works for those nations because there isn't a diverse culture seeking improvement in quality of life; there is a very homogenous culture seeking stability over improvement. In a nation that promises the opportunity for improvement, like the U.S., socialism is an enemy to the poor. It is of course a dishonest enemy using mass media to mis-educate for the benefit of the elite. I am certain that the educated, rich, elite progressives, like Clinton, Buffet, Edwards and others understand that their proposed programs help the poor to secure their station in life while a more progressive tax scheme makes it increasingly difficult to earn one's way out of the labor class. It seems that the right is more honest with us "less fortunate" people. They seem to have the future of the nation of opportunity in mind. I hope that Mit Romney, when elected, is able to turn around a socialist trend, help educate some would-be entrepreneurs like myself, and get this nation back to the growth of the capital class that we saw in the middle of last century.

P.S. Mike, thanks for dinner! I'll gladly help with the tip.

• wobble wobble 5 years ago

isn't this analogy about a tax cut? i think this has some truth, people get mad when rich get a larger tax return

• rainwaterfan2 6 years ago from Springfield, IL

Random thought: Maybe those diners should do a pot luck dinner instead? lol

• rainwaterfan2 6 years ago from Springfield, IL

That's probably an accurate observation, but in my humble opinion, I believe fairness can only be established when we as a society choose to "love our neighbors as we do ourselves" and adopt a more altruistic attitude toward our fellow man. I've heard it said somewhere (I forget where exactly) that the only way the whole group can win is when each member of that group compromises a bit for the good of the whole. This does not seem to be the current attitude of today's world.

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Jeff Berndt 6 years ago from Southeast Michigan

Thanks, Rainwaterfan!

The problem with ensuring that everyone is treated "fairly" is that it's hard to figure out exactly what "fair" is, when you weigh all of the factors involved. One thing I do know is that very few people like to admit that they had help to achieve any level of wealth. The self-made millionaires never say "I could never have done it if I hadn't been born into a middle-class suburban family, went to good schools and had my parents' help to pay for college," because that would be admitting that they weren't entirely self-made.

• rainwaterfan2 6 years ago from Springfield, IL

I really enjoyed reading your article. I'm looking forward to a time when all people will be treated fairly. Sadly, I don't believe there is anyone around who can accomplish that feat.

Rosalie

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Jeff Berndt 6 years ago from Southeast Michigan

Hi, Mike, Thanks for stopping by and commenting. You're absolutely correct that tax revenue pays for services that we are all supposed to benefit from, like roads, schools, etc. However, in practice, those things disproportionately benefit those who are already wealthy and/or already have political clout.

A prime example of this phenomenon is the way the interstate highways in Flint, Michigan were routed through poorer neighborhoods. Poorer citizens were disproportionately "eminent domained" out of their homes, and the highways broke up the integrity of the remaining neighborhoods. People who used to be able to walk to a neighborhood food market now had an impassable obstacle between that market and their homes. Instead of a ten minute walk to the grocery store, a shopping trip now pretty much requires a car. This is just one small example of the way the wealthy are treated better than the not-wealthy in the US.

This has nothing to do with hard work or lack thereof--and it has nothing to do with assuming that all property belongs to the government, or envy, any of the other speculative motivations you listed. It's simple fact.

You seem to think that everybody who is less wealthy than you are must be lazy, stupid, selfish, or otherwise unworthy: the poor deserve to be poor. That's not always the case, and that can be hard to see from a position of relative prosperity. I think it's great that you served in the military and that you volunteer your time and money to help the less fortunate. Good for you. Nobody has accused you (or anybody else) of being a villain.

You're right that the government can't keep spending as it has been, but your priorities for cuts are skewed. What we ought to cut are subsidies for the already-wealthy, foreign aid to countries that do not support our policies or our values, and defense spending (which outstrips the next ten biggest defense spenders combined, most of whom are our close allies). Add to this the fact that we've been irresponsibly cutting taxes (which, by the way, are now the lowest that they've been since before WWII) while equally irresponsibly increasing spending and it's no wonder that we're having a budget crisis.

It's easy for prosperous people to blame the poor for their poverty, just as it's easy for poor folks to assume that the prosperous are lucky, exploitive, or dishonest. But neither of those simplistic views is intellectually honest.

• Mike 6 years ago

I came across your examination of this tax analogy and I have a few comments: I disagree with the idea that the meals are unequal. Taxes are used to pay for things for which we all benefit. Fire departments, schools, defense, roads, etc. In fact, your argument fails in one major way: the poor and those who pay less in taxes are more likely to use more government provided services (paid for by taxes that a fair amount of them do not pay). So, while not perfect, the analogy is pretty apt. However, if you see the world through a different lens, one that assumes that all income is the government's, and only it gets to decide how much one gets to keep, then I can see how this might not persuade you. If you feel that somehow, the rich had to have gotten that way by exploiting the poor or abusing the system, then you might feel that the rich can never, ever pay enough into the system. If you feel envious that others have more than you and that is only because they were lucky, not because they made better decisions or worked harder, then I can see how the analogy doesn't hold up to your scrutiny.

I was fortunate to be the son of a man who taught me the value of hard work and how to position my self to take advantage of an opportunity (hint, it involves postponing pleasure, planning for the future and, yes, more hard work). I was also fortunate to be born into a society that allowed me the freedom to pursue my dreams. I was also fortunate to be born smart and healthy. For all those things, I served in the military, I pay an ungodly amount in taxes, I give to charities and volunteer my time to help the less fortunate. My only complaint is that somehow, to the liberal mind, that still isn't enough. Somehow, I am still the mustache-twisting villain. That's where the anger comes from, not from paying wayyyyy more than our share of the tax revenue in this country, but from the idea that even this disproportionate amount of financial sacrifice just isn't enough.

The restaurant analogy is simple, yes. But the reality is even simpler: entitlements will bankrupt this country eventually. There is no feasible way that the government can spend as it has, even if it eventually taxes everybody every dime they make. So, they need to be fixed, and the debt needs to be paid down. Then, and only then, should they even consider raising taxes. You don't keep giving money to a heroin addict, even if they recycle the foil.

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Jeff Berndt 7 years ago from Southeast Michigan

You're entitled to your own opinion, Tom, but not your own facts. Stop making stuff up, and perhaps we can have a debate about the wisdom or folly of a given policy.

• tom hellert 7 years ago from home

What I don't like is that in 2 years he has added 4 trillion in NEW debt but Washington to bush was only 10 Trillion

projections are that his big spending will add 26 trillion over the next 8-10 years under BHO.HE HAS DONE NOTHING BUT BERADE AND TALK DOWN our country- SUPPOSEDLY HIS COUNTRY TOO- (THE USA). WHAT ELSE DON'T I LIKE

HE WANTS TO GIVE ENEMY COMBATANTS tRIALS LIKE YOU OR I WOULD GET AS BORN AMERICANS (sorry didn't mean to yell darn caps lock)

what else I know people hate to hear it... but he has not proven his place of Birth- I can- you can why can't he???

I DONT like his C'MOn in and suddenly become a citizen Cross the border illeagally Its Ok the US Govt will sue Arizona-how retarded is that I am not saying the last 30-40 years of the US Govt has really done great at the borders BUT at least none of them said c'mon in we won't send you back- WHAT ELSE

NASA a Muslim outreach what the F is that give me a break NASA a Muslim outreach how retarded is that jeff? unless there is a hidden muslim population on mars... that is a absolute waste of NASA.

ShALL I GO ON....jUST BECAUSE OTHER COUNTRIES HAVE SOCIALIZED MEDS DOES NOT MEAN ITS GOOD-You live in a border state like me-when I was in the hospiutal I met a ton of canadians COMING TO THE USA tO get treatment that they could have got in CaNADA but they paid their own \$\$ to get an operation sooner WHY JEFf whyt if socialized medicine is so great WHY??

I'll tell you they did not want to die waiting in CaNADA.... All/most those countries listed Do not have a REal military they are not burdened by the UN with being the worlds police force sure some of them send a 100 or 1000 troops to places to stop tyranny and the like but we all know when it hits rge fan when disaster strikes who is there to bail the rest of the world out??? WHO say it again- yes the USA is Who. Why can't those countries send aid like we do? theyre to busy paying for healthcare- and NOT THE WORLDS DEFENSE AND CHARITY....

SO WHY DO YOU WANT TO HOLD THE US BACK and send us down to mediocracy-(SP) why do you want my kids and grandkids and yours as well I would assume to be in debt to the chinesse and whoeverelse we have to borrow\$ from....Why do you want the US to sink into mediocracy like your president Barry does?

WHY JEFF WHY?

Cheers

TH

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Jeff Berndt 7 years ago from Southeast Michigan

Hi, Tom.

I can tell that you disagree with this article, but I can't tell from your comments exactly why; only that your disagreement is strong enough to call the president names.

China and Cuba aren't all that happy, but according to the Legatum Investment Group's 2010 prosperity study, the US is only the 10th most prosperous country in the world, behind Norway, Denmark, Finland, Australia, New Zealand, Sweden, Canada, Switzerland, and The Netherlands. They all have some form of national healthcare, and most of them have some form of education subsidy.

Why do you want to hold the US back?

• tom hellert 7 years ago from home

JB,

Interesting slant on it-

You and your lefty fool president tax the rich and guess hat happens

Jimmy carter Ii why would anything else happen? Obama- CarterII is goin to raise those "rich peoples taxes" and watch the return of the late 70's... Just like in the metaphor the rich folks will take their money and hide it somewhere instead of creating jobs and spending it on all the people they don't know or hang out with . So you jimmy carter and Barrack Insane Obama can take your spread the wealth liberalism and go somewhere that wants it say China or 1980's russia how about cuba- all happy countries....

th

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Jeff Berndt 7 years ago from Southeast Michigan

Hi, HSchneider. It is a ridiculous analogy, to be sure, and the gap between the richest (or highest earners) and everyone else has indeed grown sharply, while the gap in the tax burden has surprisingly shrunk. I don't get that at all. But when arguing for or against higher taxes for any segment of the population, it's important to do so with clarity and honesty. This analogy (deliberately?) ignores all the societal differences between the wealthy, the middle class, and the working poor: not just the stuff they can afford to buy, but the preferential treatment that they get (or don't) and the grief they have to (or don't have to) deal with simply because of being one or the other.

Bottom line, if you're earning more than \$250K, and a tax increase (on only your earnings over and above \$250K, remember!) will financially ruin you, you need to learn how to create and stick to a budget. Perhaps you could find someone who earns \$50K or less who can show you how that works.

• Howard Schneider 7 years ago from Parsippany, New Jersey

Right on Jeff. I never heard about that analogy and I'm glad I haven't. It's ridiculous. Besides the rich have the means to pay more and should. Whatever happened to the concept of noblesse oblige? The wealth disparity has exploded in the past 10 years and it's a national disgrace. We need to let the Bush tax cuts for the rich expire as President Obama is calling for. These tax cuts exacerbated this disparity hugely. Great job debunking this ridiculous analogy.

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Jeff Berndt 7 years ago from Southeast Michigan

Lynda, thank you for the kind words. Praise from a writer of your caliber is praise indeed. I'll be riding this high for days. :)

Rob, that's exactly my point: the restaurant analogy is a false one, for the reasons listed and I'm sure for others I haven't. The unanswered question, "What would be fair, then?" is left unanswered because, frankly, I don't know the answer. But I do know that during the 1950s, top earners (earning 400K or more) did in fact pay around 90% of their earned income (not counting deductions and exemptions and such), and it doesn't seem to have put much of a damper on economic expansion.

The current top tax rate is a mere 35%, but somehow many conservatives assert that this comparatively low tax rate is guaranteed to create an economic collapse. Further, the current economic crisis comes after a historic across-the-board tax cut. The idea that high taxes on the highest earners automatically hurts economic growth, and that cutting taxes automatically benefits growth, doesn't hold up when you look at the data.

The definition of "rich" may creep downward, but the definition of "poor" never changes.

• Rob 7 years ago

Part of the problem I see in this essay is that you're beginning with a false analogy, that what is "fair" in tax law is going to be "fair" in real world examples.

The bottom line is that, yes, the wealthy have many advantages over their less wealthy neighbors. Those in the suburbs have the advantages of security, safety, and protection compared to their counterparts in the city. Retailers treat people differently (not that they should bt they often do) and yes, schools vary wildly based on area (though in Michigan thanks to Proposal A, the operating budget for staffing is supposed to be uniform throughout the state, while facility construction and 'rennovation' can come from bond issuse.)

I also think you overstate the ability of a middling professional to run his own business. My father was out of work for 2 years without success becoming a "stay at home consultant".

But all that said, the question remains "what would be fair"? At the moment, while the wealthy do enjoy privledges of the station, is it 'fair' to simply tax them into the middle class? Should we have a system where because their lives are so good, that paying 59% of the tax burden isn't enough? They need to pay 75%? 80%? 90%? At what point is it finally "fair" that the rich have paid their debt back to society? What is the "Price" of security and safety afforded a life in the suburbs? And, by corollary, how many people should live exempt from taxes all together?

I can't argue that even being in the middle class has its privledges, but I do disagree as to what a 'fair' tax policy would be. I do agree that there is merit to "what you can bear" when it comes to tax liability, but I'm also not overly anxious to continue to squeeze the rich to pay the bills, mostly because as we squeeze the rich and find too little money, the definition of rich always creaps downwards.....

• lmmartin 7 years ago from Alberta and Florida

Even before those folks got to the restaurant, there are histories at work creating an unequal situation. The whole attitude so popular today is, "if I can do so can you" which is based on the old lie "all men are created equal." They are not, never have been and likely never will be. There are very few who work their way out of the housing projects, welfare, shitty schools, etc, and when they can not, we point at them as though they were deficient somehow. We point at those that do make it as proof the system isn't rigged. It is. And it must be difficult to turn out a loser and slacker when your Dad's old money, and even if you're a worse than middling student, old Harvard will push you forward out of respect for a legacy. No, life is not fair, and neither is taxation. Boo-hoo. Great hub. Thoroughly enjoyed it and hope you get a million reads. Lynda

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