Dinner for 10: A Taxing Analogy
T. Davies, professor of accounting at the University of South
Dakota, explains the impact of tax reduction through a remarkably
understandable analogy that is both entertaining and informative.
"This is a very simple way to understand the tax laws," says
Professor Davies. "Read on, as it does make you think!" Here's his
"Let's put tax cuts in terms everyone can understand. Suppose that
every day, ten men go out for dinner. The bill for all ten comes to
$100. If they paid their bill the way we pay our taxes, 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 $7, the eighth $12, the
ninth $18, and the tenth man--the richest--would pay $59.
"That's what they decided to do. The ten men ate dinner in the
restaurant every day and seemed quite happy with the
arrangement--until one day, the owner threw them a curve (in tax
language a tax cut).
"'Since you are all such good customers,' he said, 'I am going to
reduce the cost of your daily meal by $20. So now dinner for the ten
only cost $80.00.
"The group still wanted to pay their bill 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--the paying customers? How could they divvy
up the $20 windfall so that everyone would get his 'fair share?'
"The six men 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 end up being PAID to eat their meal. So the restaurant
owner 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 paid nothing, the sixth pitched in $2, the
seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the
tenth man with a bill of $52 instead of his earlier $59. Each of the
six was better off than before. And the first four continued to eat
"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, but he, pointing to the tenth. 'But he got $7!'. 'Yeah, that's
right,' exclaimed the fifth man, 'I only saved a dollar too; it's
unfair that he got seven times more than me!'
'"That's true,' shouted the seventh man, 'why should he get $7 back
when I got only $2? 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 beat him up. The next night he
didn't show up for dinner, so the nine sat down and ate without him.
But when it came time to pay the bill, they discovered, a little late
what was very important. They were FIFTY-TWO DOLLARS short of paying the bill!
"Imagine that! And that, boys and girls, journalists, and college
instructors, is how the tax system works. The people who pay the
highest taxes get the most benefit from a tax reduction. Tax them too
much,attack them for being wealthy, and they just may not show up at the table anymore.
"Where would that leave the rest? Unfortunately, most taxing
authorities anywhere cannot seem to grasp this rather straightforward
Professor of Accounting & Chair,
Division of Accounting and Business Law
The University of South Dakota
School of Business