The principle of taxes seems to be easily explained by a fairly simple logic. However, many people do not always grasp it.
As tax season is upon us, let me try to explain it in simple terms so that everybody can understand it.
Imagine that every day, 10 friends go to a bar to drink a beer and the total bill always comes to 100 euros. (Normally this would be 10 euros per person).
But our ten friends decide to pay the bill using a distribution based on our calculation method for income tax, which works out roughly like this:
- The first 4 friends (the poorer?) pay nothing
- The fifth friend pays 1 euro
- The sixth friend pays 3 euros
- The seventh friends pay 7 euros
- The eighth friend pays 12 euros
- The ninth friend pays 18 euros
- The last friend (the richest?) pays 59 euros.
The ten friends meet daily to drink their beer and seem quite happy with their arrangement.
Until the day when the owner places them in front of a dilemma:
“As you are good customers, he said, I decided to give you a discount
of 20 euros off the total bill. You can now pay only 80 euros for your 10 beers. ”
The group decided to continue to pay the new amount in the same way they had paid their taxes.
The first four continued to drink for free. But how would the other six, (the paying customers) divide the 20 euro discount fairly? They realized that 20 euros divided by 6 were 3.33 euros.
But if they subtracted the amount of their discount equally, then the 5th and 6th man should have to actually be paid to drink their beer. The bar owner suggested that it would be fairer to reduce the payment of each friend by a likewise incremental percentage, again following the same logic of our wonderful taxation system, and proceeded to calculate it.
What he came up with was roughly this:
- The 5th friend, like the first four, now paid nothing. (a new poor?)
- The 6th friend now paid 2 euros instead of 3 (a 33% reduction)
- The 7th friend now paid 5 euros instead of 7 (a 28% reduction)
- The 8th friend now paid 9 euros instead of 12 (a 25% reduction)
- The 9th friend now paid 14 euros instead of 18 (a 22% reduction)
- The 10th friend now paid 50 euros instead of 59 euros (a 16% reduction)
Each of the six “payers” paid less than before, and the first 4 continued to drink for free.
But once outside the bar, each friend compared its ‘economic achievement’:
“I only received 1 euro discount over the total 20 euro discount,” says the 6th friend, and while pointing at the 10th friend complains: “He got 9 euros off.
“Yeah! said the 5th friend, “I only saved 1 euro as well ”
“It’s true! “Exclaimed the 7th friend, “Why would he get 9 euros off while I have had only got 2 euros off? The richest friend got the bulk of the discount!! ”
“Wait a minute” shouted the 1st friend, “the 4 of us got no discount at all! The system exploits the poor!!”
The 9 friends cornered friend number 10 and proceeded to insult him. The following night, the 10th friend (the richest?) did not come to the bar. The other nine friends seated at the bar and had their beer without him.
But as the time came to pay their bills they discovered something important: they only had enough money to pay half the bill!
And that, my dear friends, is the full reflection of our taxation system. People who pay the most taxes get the most benefit from a tax reduction.
Tax the strongest, accuse and blame them for being rich and they may not show up anymore.
In fact they might go drinking abroad…
For those who understand, no explanation is necessary.
For those who do not understand, no explanation is possible.