02 June 2006

Tax Math Reframed

Liberalizing a Conservative Parable of Uncertain Origin

Suppose that every day, ten men go out to their exclusive buffet dinner club and the membership dues for all ten came to $100 each day. If they paid their membership dues the way we pay our taxes in America, 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 ate dinner in the restaurant every day and were happy with the arrangement, until one day, the club manager threw them a curve. "Since the club is doing so very well," he said, "I'm going to reduce the cost of your daily dues by $20." Membership dues for the ten now cost just $80 each day.

The group still wanted to pay their dues the way we pay our taxes so the first four men were unaffected. They would still eat for free. But what about the other six men - the paying members? 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, then the fifth man and the sixth man would each end up being paid to eat their meal.

So, the club manager 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 $50 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to eat 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 $9!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got almost ten times more than me!"

"That's true!!" shouted the seventh man. "Why should he get $9 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 and then he said, “Now hold on boys, let’s consider what’s really going on here. Isn’t the manager of our club sending our sons and daughters over to another club across town to kill or die?”

One of the five who receive meals without paying dues replied, “Yeah and mostly ours not yours, so, what’s your point?”

So he continued, “Doesn’t his attacking the other clubs cause our club to run a deficit and accumulate debt?”

The eighth man replied, “So?”

He continued, “Don’t you think it’s a little odd to suddenly offer us a dues reduction when the club is operating on deficit spending and accumulating debt? Do you really believe that is a good way to manage our club?

“I know that we don’t always agree on how to pay the dues, but let’s not forget that we are all equal owners of this club. The reason we created the club in the first place was to make sure we all had a good meal every day, we started this club in order to take care of each other. We distributed the dues so that everyone can reasonably afford to be members. Our club system is not about who gets how much, it is about how well we are taking care of each other. If there are problems in our club it is because we aren’t taking good care of each other and club resources are getting diverted from the real purposes we created the club to serve.

“We were all upset to find out how mistreated members of the other club were and when the manager made his case for the threat against us we believed him and trusted that he was using good judgment, so we supported his proposal to take aggressive action, but that’s not what our club was created to do.

“Now consider the fact that you were about to lynch me. Anger and fear are not good states of mind for making caring decisions. When we act out of the fear and anger then we sometimes take actions that we later regret. If our club is going to take care of us then we have to figure out how to care for each other, not attack one another. We need to think about how to design a club system that supports us to be creative and bold, not afraid and defensive. We all agree that we need to be strong as a club, and while the strength of fearful defense is strong, the strength of creative and bold loving is even stronger!

“We need to reconsider the purpose and mission of this club and then alter how we manage our manager to serve the club not the manager. In any case, lynching is not a solution to the problem.”

So they all drifted home and went to bed feeling guilty for almost lynching their friend. But after seeking personal support amongst each other, receiving a little counseling, and investigating how to be empowered club members they hired a new manager, revised the charter, stopped attacking other clubs and lived happily until the next time they got complacent, hired a fear mongering manager, and felt like lynching somebody again.

[To get the original story and find out about it’s reputed but indefinite origins: http://www.snopes.com/business/taxes/howtaxes.asp ]

In the original story as it came to me by e-mail the ten men were eating at a regular restaurant and the "club manager" was actually the "restaurant owner." But that raises the question of whether the relationships in the parable accurately reflect an appropriate parallel to the relationships that they are being used to represent.

When I googled the original parable to find out if the math was incorrect there was not a single refutation of the math, although there were some comments on the violent finale in which the rich guy gets lynched. It was overly dramatic, but it exemplifies the real fear embedded in the original “conservative” version.

In my revision I have tried to incorporate a different set of embedded assumptions that would better reflect on my understanding of the way things are supposed to work. Although I did not succeed in countering all of the original misguided assumptions I covered most of them. Here are the embedded assumptions of the original that seem to me to be problematic or not matched to reality as I understand it along with criticisms questions or an alternative to each:

1. the government is a restaurant that can be owned by someone
Criticism: The very idea that the government can be owned is sickening enough, but to imply that it is owned by the president or the ruling party is even worse.
Alternative Frame: The government is a club in which we receive benefits by virtue of membership.

2. the owner of the restaurant is separated from or different than those whom he serves
Alternative Frame: The manager of the club is also a member of the club

3. the owner of the restaurant is free to change prices without any consideration of costs
Alternative Frame: The manager is obligated to justify changes in dues based on real costs and a reasonable plan for managing the club resources to accomplish the mission of the club (without conflicts of interest)

4. the bill is presumed to be paid entirely by personal income taxes
Questions: The costs of the government club are covered by more than just personal income taxes so an accurate picture of the tax system should reflect those other obligations and how they are collected. How much do corporate taxes contribute to the maintenance of the club? How could we portray their role and contribution?

5. when the rich customer is killed his resources are assumed to disappear
Problem: The rich customer’s assets would probably get caught up in probate and the lawyers in the group would probably end up with most of them. In any case the fifty bucks would not simply disappear, they would go to someone else who would simply assume the position and the bill would still get paid, but by a different person.

6. The benefits of the restaurant meals are assumed to be received uniformly amongst the customers
The club is founded for the purpose of our common welfare such that the club is on a mission to provide nurturing support to the members. The buffet dinner was meant to represent this uneven distribution of the available benefits, but this still misrepresents the situation because many of the people who might stand to benefit are discouraged or otherwise prevented from receiving the benefits they may be entitled to have. The story would have to include some way of insulting the poorest for being poor before they could get their meal.

Another problem with the parable is that the idea that a reduction in the amount that each person pays should be calculated as if it were cash to be received as a refund instead of a discount off the original price. A manager that discounts more than a 100% would be fired for giving away the store.

I have also neglected to redistribute the gender, educational level, sexual orientations and racial attributes of the characters in the story, which would be required for a full liberalization of the tale.

My rewriting is at least partly inspired by ideas in George Lakoff's books, Don't Think of An Elephant and Moral Politics.

[FYI- I have revised this post since Karl Low made his comments and some of his critique has been helpful in revising the post since then.]
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