Truth About Taxes
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The Truth About Taxes 

by Mary Gilbert, 2/22/03
(This is a rewriting of a supposedly humorous story going about the web about why the rich most deserve a tax break to revive the economy.)

I was having lunch with one of my favorite clients last week and the conversation turned to the government's recent round of tax cuts. "I'm opposed to those tax cuts," the retired college instructor declared, "because they benefit the rich.  The rich get much more money back than ordinary taxpayers like you and me and that's not fair."

"But the rich pay more in the first place," I argued, "so it stands to reason that they'd get more money back."  I could tell that my friend was unimpressed by this meager argument.

He said to me, let's put tax cuts in terms everyone can understand. Suppose that every week ten men receive a paycheck. The paychecks for for all ten comes to $1000. If it was paid the way we pay our taxes, the first four men receive $100 apiece; the fifth receives $200; the sixth receives $400; the seventh $500; the eighth $750; the ninth $1250.  The tenth man (the richest) would receive $6500.

The 10 men received their paychecks every week, and seemed to be managing all right until the economy threw them a curve.  Spending was down and the government said "we need to have more money in circulation so people will buy more and save the day.  We're going to cut taxes by $1000 so people will have more money in their pockets to spend.  To figure this out we'll look at two plans and see where each one would get us as a nation."

Plan A
The first four men are unaffected, except that one of them is now unemployed so that his family becomes homeless and has to move in with relatives with whom they fight all the time.  The other three get by by being very careful with every cent and not going to the movies.  The fifth, sixth and seventh also are unaffected, except that one of them is now unemployed and has to give up his summer home and pull the kids out of college until things look better.  The eighth has his taxes reduced by $50, and he is able to trade in his old car for a Lexus.  The ninth has his taxes reduced by $200. He adds a bit to his stock portfolio and then buys the other guy's summer home that he had to put on the market.  Now he has 3 homes: his main house, his apartment in the city that he uses when he goes in for meetings or to take in a show, and a cute bungalow in the country.  The 10th man receives a $750 windfall.  Actually he doesn't even notice because his lifestyle was already so extravagant that his spending doesn't change and the untaxed money goes directly into investments which increase his opulent income even more.

Plan B
Each of the first four men has his taxes reduced by $100.  They buy their kids new sneakers, spend more on food and take their families out to the movies.  The fifth, sixth and seventh men also each receive $100. One treats himself to a new sound system, another sends his kids to summer camp, and the third spends it all on a fancy wardrobe (what a jerk!).  The eighth man gets, guess what? $100.  He is able to get his Lexus and go on a cruise.  The ninth has his taxes reduced by $100.  He can't buy the summer home (it's not on the market) but he adds to his investment portfolio.  The tenth man gets his $100 and doesn't even notice it because such a small amount of money doesn't even come to his attention and his lifestyle wasn't going to change anyway.

Under Plan B money is channeled into the sneaker industry, the food industry, the movie industry the sound system industry, the summer camp industry, the fancy wardrobe industry the automobile industry, and the cruise industry, as well as the stock market.  Production of goods is increased and jobs become more plentiful.

And that, boys and girls, is how the economy works in our daily lives.

Now, which plan is best? And which one is the current administration choosing?


The love of liberty is the love of others. The love of power is the love of ourselves. -- William Hazlitt
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( This page was last updated on:  01/02/2004 )