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Why the "Rich" Won’t Be Coming to Lunch
By Perry Gardner, East Canaan
Several weeks ago I had dinner with an associate who happens to be a retired college professor, and the conversation turned to politics and economics (and we are still friends). Among other things, we discussed the current finances of the State of Connecticut and the federal tax cuts of last year. It was evident that my associate was rather strongly opposed to the tax cut from last year and favors more taxes in Connecticut on the rich. He was really upset because "the federal tax cut benefited the rich and they got much more money back than the ordinary taxpayers like you and me, and that’s just not fair".
I tried to explain that the rich pay more in the first place, so it stands to reason that they'd get more money back. I could tell that my friend was unimpressed by this argument. I should have made my argument around the point that the rich would be paying less and not getting more back, and perhaps that would have been more persuasive. Obviously, even some retired college professors are a prisoner of the myth that the "rich" somehow get a free ride in the process of paying taxes. After I got home, I looked up some info on the IRS website as to who pays what percent of the taxes, and here is an analogy that I should have used to make the point more clear. I will use the actual split on federal taxes paid by individuals in 1999 per the IRS (since that was the most recent data I could find).
Suppose that ten people go together to the local restaurant for lunch every day at noon. The total bill for all ten comes to $100. If it was paid the our federal income taxes are paid, the first four people would pay nothing; the fifth would pay $1; the sixth would pay $2; the seventh $5; the eighth $8; the ninth $18. The tenth person (obviously the richest) would pay $66. (This info alone should shock you.)
The ten people ate lunch in the restaurant every day and seemed quite happy with the arrangement until the owner threw them a curve. "Since you are such good customers," he said, "I'm going to reduce the cost of your daily meal by $20. Now lunch for the ten only costs $80!
Oh, but what should they do with this "extra" money that would be "fair"? The first four should be unaffected; they still eat for free. Can we figure out how to divvy up the $20 savings among the remaining six so that everyone gets their fair share? The people realize that $20 divided by 6 is $3.33, but if they subtract that from everybody's share, then the fifth person and the sixth person would end up being paid to eat their meal, and this will surely not be acceptable to the rest. The restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount where possible, and he proceeded to work out the amounts each should pay. And so the fifth person paid nothing, the sixth person paid nothing, the seventh paid $2, the eighth paid $5, the ninth paid $15, leaving the tenth person with a bill of $58 instead of $66. Outside the restaurant, the people began to compare their savings.
"I only got $2 out the $20," declared the sixth person pointing to the tenth, "and they got $8!"
"Yeah, that's right!" exclaimed the fifth person. "I only saved a dollar, too. It's unfair that they got eight times more than I did!"
"That's true!" shouted the seventh person. "Why should he get $8 back when I got only $3? The wealthy get all the breaks."
"Wait a minute!" yelled the first four people in unison. "We didn't get anything at all. This system exploits the poor."
The nine people surrounded the tenth and beat him up. The next day the tenth person didn't show up for lunch, so the nine sat down and ate without him. Besides, now they did not really want his company anyway. But when it came time to pay the bill, they discovered something important—they were $58 short!
The fact of life is that the people who pay the highest taxes will get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, throw up so many barriers that they cannot maintain or accumulate wealth, and they just may not show up at the lunch table anymore. There are lots of good restaurants in Switzerland, Bermuda and the Caribbean.
This analogy is based upon the actual distribution of federal income taxes, but the state taxes very much parallel this distribution for individuals. Businesses are subject to the same type of taxation distribution and they "come to the table for lunch" in the same manner individual taxpayers do. Connecticut has for years been beating up on our businesses for being successful by taxing heavily and by throwing every regulatory roadblock we could think of in their way, and now they are going to lunch in other states and countries. Names like BE Aerospace, Winchester Electronics and Lambert-Kay, to name a few, are all examples in this state of the "rich" that will no longer be going to lunch with us. We have been driving business and jobs—and consequently, people—out of the state for some time. That is why we are giving up a U.S. Representative in the next election.
We have beat up the "rich" businesses in this state and, as a consequence, the next legislative session has to face the reality that the rich party at the lunch table is moving on to lunch with others. As we sit down for our 2002 "state budget lunch," we see we are going to be $58 short. Those of us who remain have to choose between paying more or eating less. I wonder how many people are going to understand how we got into this position, or we just going to blame the rich for not paying their share?
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