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I love it when people say “The Tories defend the rich through tax cuts”, because it’s just not how tax cuts work. Here’s a little story (not my own) to explain why. 1/14
Suppose that every day, ten men go out for beer and the bill for all ten comes to £100...
If they paid their bill the way we pay our taxes, it would go something like this... 2/14
If they paid their bill the way we pay our taxes, it would go something like this... 2/14
The first four men (the poorest) would pay nothing.
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7..
The eighth would pay £12.
The ninth would pay £18.
The tenth man (the richest) would pay £59.
So, that's what they decided to do.. 3/14
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7..
The eighth would pay £12.
The ninth would pay £18.
The tenth man (the richest) would pay £59.
So, that's what they decided to do.. 3/14
The 10 men drank in the bar every day and seemed quite happy with the arrangement, until the owner threw them a curve ball.
"Since you’re all good customers," he said, "I'm going to reduce the cost of your daily beer by £20". The drinks for all of them would now cost £80. 4/14
"Since you’re all good customers," he said, "I'm going to reduce the cost of your daily beer by £20". The drinks for all of them would now cost £80. 4/14
The group still wanted to pay their bill the way we pay our taxes.
So the first four men were unaffected.
They would still drink for free. But what about the other six men?
The paying customers? 5/14
So the first four men were unaffected.
They would still drink for free. But what about the other six men?
The paying customers? 5/14
How could they divide the £20 windfall so that everyone would get his fair share?
They realised that £20 divided by six is £3.33. But if they
subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. 6/14
They realised that £20 divided by six is £3.33. But if they
subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. 6/14
So, the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay. 7/14
And so the 5th man, like the first 4, now paid nothing (100% saving).
The 6th now paid £2 instead of £3 (33% saving).
The 7th now paid £5 instead of £7 (28% saving).
The 8th now paid £9 instead of £12 (25% saving).
8/14
The 6th now paid £2 instead of £3 (33% saving).
The 7th now paid £5 instead of £7 (28% saving).
The 8th now paid £9 instead of £12 (25% saving).
8/14
The 9th now paid £14 instead of £18 (22% saving).
The 10th now paid £49 instead of £59 (16% saving).
Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings. 9/14
The 10th now paid £49 instead of £59 (16% saving).
Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings. 9/14
"I only got a pound out of the £20 saving," declared the sixth man.
He pointed to the tenth man,"but he got £10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a pound too. It's unfair that he got ten times more benefit than me!" 10/14
He pointed to the tenth man,"but he got £10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a pound too. It's unfair that he got ten times more benefit than me!" 10/14
"That's true!" shouted the seventh man. "Why should he get £10 back, when I got only £2? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!" 11/14
"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!" 11/14
So the 9 men beat the 10th up.
The next day the 10th man didn't show up for drinks, so the 9 sat down and had their beers without him. But when it came time to pay, they discovered that they didn't have enough money between them all for even half of the bill! 12/14
The next day the 10th man didn't show up for drinks, so the 9 sat down and had their beers without him. But when it came time to pay, they discovered that they didn't have enough money between them all for even half of the bill! 12/14
So, the people who already pay the highest taxes will naturally get the most benefit from a tax reduction. 13/14
Tax them too much, attack them for being wealthy, and they just may not show up anymore.
In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier. 14/14
In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier. 14/14
