This past week, Press Secretary Sarah Hubkabee Sanders gave an illustration that she thought explained our tax system. You can watch the video here. After watching the video, I thought to myself, “What if you changed the analogy from a pleasure to a necessity? Would that change anything?” And so that is what I have done below. To Mrs. Sanders credit, she made it clear this was an overly simplistic illustration for a very complex problem. The worse thing you can do with a simplistic analogy is over analyze it. But I did anyway. You will need to watch the video first, for my analysis to make any sense. Enjoy.
Suppose every day 10 reporters stop at the grocery store on their way home from work to pick up food for their family for the evening. The bill each day, for all 10 families comes to $100. If the 10 reporters paid their grocery bill every night the way we pay our taxes it would go something like this:
- The first 4 reporters, the poorest, would pay nothing for their groceries.
- The fifth reporter would be $1.
- The sixth reporter would be $3.
- The seventh reporter would be $7.
- The eighth reporter would pay $12.
- The ninth reporter would be $18.
- The tenth reporter, the riches, would pay $59.
So that is what they decided to do.
The 10 reporters went grocery shopping every day and seemed quite happy with the arrangement until one day the owner of the grocery store threw them a curve-ball. “Since you are all such good customers,” he said, “I am going to reduce the cost of your daily groceries by $20.” Now the total daily grocery bill for the 10 reporters was $80. The 10 reporters still wanted to pay their grocery bill the way we pay our taxes. Now, after the $20 reduction, the bill looked something like this: The first 4 reporters, the poorest, still paid nothing for their groceries.
But what about the other 6 reporters? How could they divide the $20 windfall so that everyone received their fair share? After all, these are reporters very concerned about fairness. They realized that $20 divided by 6 is $3.33. But if they subtracted that equally from everyone’s share, the fifth reporter and sixth reporter would each be paid to purchase groceries. The grocery store owner suggested it would be fair to reduce each reporter’s bill by a higher percentage the poorer he or she was. By doing that, the explained, they would continue to follow the tax system they had already been using. The grocery store owner proceeded to work out each reporter’s amount of the bill. It looked like this:
- The fifth reporter, like the first four reporters, now paid nothing, receiving a 100% savings.
- The sixth reporter now paid $2, instead of $3. A 33% savings.
- The seventh reporter now paid $5, instead of $7. A 28% savings.
- The eighth reporter now paid $9, instead of $12. A 25% savings.
- The ninth reporter now paid $14, instead of $18. A 22% savings.
- The tenth reporter now paid $49, instead of $59. A 16% savings.
So, each of the 6 was better off than before and the first 4 continued to receive their groceries for free.
Once outside the grocery store, the reporters began to compare their savings.
“I only got $1 out of the $20 savings,” declared the sixth reporter. Then, pointing to the tenth reporter, said, “He got $10!”
“Yes! That’s right,” exclaimed the fifth reporter, “I only saved $1 as well. It is unfair that the tenth reporter saved 10 times as much as me.”
“That’s true,” shouted the seventh reporter, “Why should he get $10 back when I only got $2? The wealthy always get all the breaks.”
“Wait a minute,” yelled the first four reporters in unison, “We didn’t get anything at all. This tax system exploits the poor.”
All nine reporters continued to yell at the tenth reporter, making him feel bad.
The next day, after work, the 10th reporter did not show up to buy groceries. The other nine reporters, went grocery shopping without him. When it came time to pay the bill, the nine reporters discovered something important: Without the tenth reporter, they did not have enough money between them to even pay half the bill!
That, ladies and gentleman is how our tax system works. The people who already pay the highest taxes will naturally benefit the most from a tax reduction, but it will not be the largest percentage benefit. Tax them too much, and attack them, and they might start doing their grocery shopping overseas, where the atmosphere is somewhat friendlier.
It’s a great story, isn’t it? Until you analyze it closer.
First, and this is the worst part of the illustration, did you notice how the poor are the villains and the wealthy are the heroes in the story? Even worse, by the end of the story, the wealthy are victims!
Second, food is a necessity, which is why the beer analogy does not work.
Third, if all 10 people are reporters, why is there such a disparity in pay? Is the disparity based on merit and/or experience, or is it based on other things like education (where you went to school), gender, race, religion, or nepotism?
Fourth, how large are their families?
Fifth, how far away is the grocery story from the reporters’ homes?
But again, the main problem I have with this “simple” illustration is that it blames the poor for being poor and for even complaining about their situation, “They ought to be happy they get anything!” While at the same time, making the wealthy the victim. Trickle-down economics has proven not to work.
Hearing illustrations like this from our administration makes me want to drink.
Will someone else buy?