Monday, April 18, 2011

Joe Plumber’s Economics

[This reprint from October 2008 is in light of all the enthusiasm towards "more taxes for the rich," which many assume would solve a lot of problems, as opposed to creating a host of other ones. I realize some people may be tired of Joe the Plumber, don't ask me why. Just remember, someone running for President may decide to trample on YOUR front lawn some day. I rest my case. -- DLA]

Recently, Democratic presidential candidate Barack Obama got an earful from a plumber in my native Ohio. That plumber, Joe Wurzelbacher -- wouldn't you know, his name is Joe -- was interviewed later by Fox News Channel's Neil Cavuto. It seems that Obama's tax plan for those making over $250,000 a year, would have an adverse effect on small businesses throughout America. And even though those businesses provide a lot of jobs for Americans, what matters most of all here is Obama's stated intentions for redistributing the wealth of America, a plan which amounts to socialism.

Right about now, I wish I were Neil Cavuto, because I could then explain better why Obama's plan is a recipe for disaster. But since I'm not, I'll have to use an example that's been floating around the internet of late. Here we go ...

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Let's 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, [Pay attention, kiddies, here's the part where we do the math.] it would go something like this:

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.

The ten men drank in the bar every day and seemed quite happy with the arrangement until one day the owner threw them a curved ball (or is that a curved beer!). "Because you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20."

Drinks for the ten now cost just $80.

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? How could they divide the $20 windfall so that everyone would get his "fair share?"

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, [Okay, here's where the plot thickens.] then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now paid $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant the men began to compare their savings.

"I only got a dollar out of the $20," 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 dollar too. It's unfair that he got ten times more than me!"

"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth man and beat him up. The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. [Okay, here's where all that counting on our fingers and toes really pays off.] They didn't have enough money between all of them for even half of the bill!

Now, there are all kinds of proposals as to how our tax system can be completely overhauled. One is the so-called "flat tax," another is a variation with three levels based on income bracket. There have even been proposals to eliminate the federal income tax altogether, and go with the national sales tax. Some of the states have been using that for years. Then again, they don't have much of a defense budget, do they? All that aside, though, the above is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. 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.


(Tip of the Black Hat to the Pertinacious Papist, who looked the other way when I stole this. As always, I have no shame.)

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