10 men at the bar: a parable for the times we live in

IN his column (December 14) Fergus Finlay said we are the first democracy ever to decide the poor must pay our debts.

He concluded: “When the going was good, all the tax breaks were given to people who had plenty ...” While his aspirations are laudable the problem is his argument is, at best, misleading.

Consider this short parable of “how the tax system works” (author unknown) which I have revised using the most recently available income tax data (2006). Suppose that every day, 10 men go out for beer and the bill for all 10 comes to €100. If they paid their bill the way we pay our taxes, it would go something like this:

The first five men (the poorest) would pay nothing.

The sixth would pay €1.

The seventh would pay €3.

The eighth would pay €9.

The ninth would pay €21.

The 10th man (the richest) would pay €66. So, that’s what they decided to do. The 10 men drank in the bar every day and seemed quite happy with the arrangement until one day the owner threw them a curve. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by €20.” Drinks now cost just €80 total. The group still wanted to pay their bill the way we pay our taxes, so the first five men would still drink for free.

But what about the other five — the paying customers? How could they divide the €20 windfall so that each would get his fair share?

They realised that €20 divided by five is €4. But if they subtracted that from everybody’s share, then the sixth and seventh man would each end up being paid to drink his beer.

So the bar-owner suggested 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 sixth man, like the first five, now paid nothing (a 100% saving).

The seventh now paid €2 instead of €3 (a 33% saving).

The eighth now paid €6 instead of €9 (a 33% saving).

The ninth now paid €16 instead of €21 (a 23% saving).

The tenth now paid €56 instead of €66 (a 15% saving). Each of the five was better off than before. And the first five continued to drink for free. But once outside the bar, the men began to compare their savings. “I only got a euro out of the €20,” declared the seventh man. He pointed to the 10th man, “but he got €10”. “Yeah, that’s right,” exclaimed the sixth man. “I only saved a euro, too. It’s unfair that he got 10 times more than me.”

“That’s true,” shouted the eighth man. “Why should he get €10 back when I got only three? The wealthy get all the breaks.”

“Wait a minute,” yelled the first five men in unison. “We didn’t get anything at all. The system exploits the poor.”

The nine men surrounded the 10th and beat him up. The next night the 10th man didn’t show up, so the nine had beers without him. But when it came time to pay the bill they discovered something important. They didn’t have enough money between all of them for even half of it. And that is how our tax system works. The people who pay the highest taxes get most benefit from a tax reduction. Tax them too much and they just may not show up anymore. We should be doing more for our poor, but attacking income tax breaks as inequitable is not the way to go. We do far more than give the poor tax breaks. We don’t tax them in the first place.

Seamus Coffey

Lecturer in Economics

University College Cork