The Free Lunch
FREE LUNCH
"It's just a tax cut for the rich!" That's what they say - and it is often accepted as fact. But what does that really mean? To illustrate what it would mean in the private sector, we offer the following lesson in taxation economics 101:
Every day the same time, ten men go out for lunch. The bill for all ten comes to $100. If they paid their bill the way we pay income taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.00
The sixth would pay $3.00
The seventh would pay $7.00
The eighth, $12.00
The ninth, $18.00
The tenth man (the wealthiest) would pay $59.00
So, that is what they agreed to do.
The ten men ate lunch in the restaurant every day and seemed quite happy with the arrangement. One day, the owner decided to show his appreciation for their continued patronage and suggested:
"Since you are all such good customers, I'm going to reduce the cost of your daily meal by $20.00."
So now, the lunch for the ten cost only $80.00 instead of $100.00. The group wanted to apportion the payment of the bill in the same manner as before, so they made adjustments to each diner's responsibility.
The first four men were unaffected. They would still eat for free. But the other six paying customers must have their portion adjusted. How could they divide the $20.00 savings so that each would receive his "fair share" of the discount?
The six men realized that $20.00 divided by 6 is $3.33. If they subtracted that from everyone's share, the result for the fifth and the sixth men would mean they would actually be paid to eat their meal. Clearly this could not be done.
So, the restaurant owner suggested that it would be fair to reduce each man's bill by approximately the same relative amount, and so he proceeded to work on the numbers.
His conclusion was:
The fifth man, like the first four, now paid nothing - 100% savings.
The sixth now paid $2.00 instead of $3.00 - 33% savings
The seventh now paid $5.00 instead of $7.00 - a savings of 29%
The eighth man now paid $9.50 instead of $12.00 - a 21% savings.
The ninth man now paid $14.50 instead of $18.00 - a 19% savings
The tenth now paid $49 rather than $59.00 - a 17% 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 and became very unhappy.
"I only got a dollar out of the $20.00!!" declared the sixth man. He pointed to the tenth man and said "And he got $10.00!!"
"That's right." Said the fifth man, "I only saved a dollar too. It's unfair that he got ten times more than I did!!"
"That's true!!" shouted the seventh man. "Why should he get $10.00 back when I got only $2.00? The wealthy get all the breaks!!"
"Wait a minute," yelled the first four men in unison (who paid nothing - and still pay nothing). "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 afternoon the tenth man did not show up for lunch, so the nine sat down and ate without him. When it came time for the bill, they learned an important lesson.
Professor David R. Kamerschen, PHD
Professor of Economics
University of Georgia
"That's right." Said the fifth man, "I only saved a dollar too. It's unfair that he got ten times more than I did!!"
"That's true!!" shouted the seventh man. "Why should he get $10.00 back when I got only $2.00? The wealthy get all the breaks!!"
"Wait a minute," yelled the first four men in unison (who paid nothing - and still pay nothing). "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 afternoon the tenth man did not show up for lunch, so the nine sat down and ate without him. When it came time for the bill, they learned an important lesson.
Professor David R. Kamerschen, PHD
Professor of Economics
University of Georgia