June 21, 2005

Tax Cut Dinner

Bob McC writes:

Found this explanation of tax cuts today. Im boggled at how off it is, but I cant explain it. Anyone?

You can see the full tax cut analogy on his site.

My summary of the parable is this: A group of men go out to dinner. They come up with a plan for dividing up the bill. The richest man will pay the largest share of the bill. The poorest man will pay the least. Later, the owner of the restaurant decides to give them a discount. They have to decide how to pay the new, lower bill. Naturally, if they reapply the same principle, the richest man will get the largest share of the discount, because he paid the most. It closes with a slam against people who criticise tax cuts.

I’m not an economics expert, but I know a thing or two about criticising bad analogies. And since that’s what Bob asked for, I’ll oblige with some observations.

What Discount?

First of all, the government is not a business owner who decides on a whim to give us a discount. The government is all of us, and it is funded by all of us. The government can only adjust how it collects taxes, but it still has its own bills to pay, which means we have those bills to pay.

Instead of a restaurant owner, a better analogy might be the head of a family. Let’s say a bunch of people are living in a house and paying money to maintain the house. One person is put in charge of the finances, but all contribute. It’s silly to imagine that this person can give the others a “discount.” The bills still need to be paid. There is no discount.

Debt

Returning to the silly restaurant analogy, let’s say what is happening is that the men don’t divvy up the bill. Instead, they have been contributing to a kitty to pay all restaurant bills. The kitty is running a sizeable surplus. Rich guy says - “Wow - a surplus. I want some of that money” so he suggests they start contributing a lot less. Especially him. However, at the same time he starts ordering more expensive Middle Eastern delicacies off the menu. Suddenly, not only is the kitty empty, but he’s roped them into a loan.

The debt will be passed on to their children, should they fail to pay it off. And the interest is daunting. And, oddly, rich fellow’s children will never have much trouble paying off their share of the debt. You find out Rich Fellow and his friends are supplying the restaurant with the ingredients for the very expensive meals that you weren’t really sure you needed to order.

Bad Analogies Are Fun

Perhaps economics experts could argue that my analogies are also flawed. I’m sure they are. But an analogy such as the restaurant parable is not an accurate model of the situation. Rather it is a simplistic attempt to express an opinion, or a viewpoint. This it does, but at the expense of ignoring that tax cuts live in a larger universe.

And it just makes the person feel good about their opinion.

Responsibility

Tax paying is a responsibility we share in this country. It can be said that the rich are benefiting disproportionately in this system, and so their greater share of the tax burden is only natural. However we’d like to feel that the government should but out, they are not making that money despite the government. They are making their money because of the entire stable system that has been erected, and part of that system is the government.

A tax break, viewed cynically, is an attempt to shirk some of that responsibility. Of course, it would be very difficult to just give a tax cut to the more rich and powerful. So you have to toss the middle class something to keep most of them quiet. That way you can make silly arguments like “If you don’t like the tax cut, send it back! Hardy-hardy-har!”

Meanwhile, the government is spending like a drunken mathematician and suddenly the debt is huge again. But the rich are still comfy as the government is forced to cut services to take care of the debt. Does it cut services that have an impact on the system that allows the rich to benefit disproportionately?

Of course not. The poorer folks are not taking congressmen to lunch. What goes are the services that benefit them.

What do we have to do to get people to see taxes as a responsibility? Start the jingoistic meme that “people who complain about their taxes love the terrorists?”

Posted by James at June 21, 2005 7:25 PM
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Comments

I like your anologies better, but that could be because our ideologies are closer together. :)

This dining out parables is just more "lying with statistics". I'm tired of it. I actually contemplated going back to school to get a math degree just so that I could go around debunking statistical lies. Kind of like debunking psychics. I may still do that. But not just now.

Posted by: briwei at June 22, 2005 5:49 PM

Oops - I proofread and found a typo. Missed a "not" Fixing...

Posted by: James at June 22, 2005 7:53 PM

Awww, James, tell me that you didn't just use the analogy of Government as "head of the family"?!

God I hate liberals... No, wait, let me change that to "Hate liberalism; love the liberal"

Posted by: Steve at June 28, 2005 6:02 AM

What - you want the baby to be in charge of the finances?

Posted by: James at June 28, 2005 7:27 AM
tell me that you didn't just use the analogy of Government as "head of the family"?!

Where does that analogy break down? The government is the authority figure, it maintains order, imposes discipline, and provides services to look after the wellbeing of it's citizenry. This is very similar to the head of a family.

Is the problem that liberals and libertarians can't be in the same family?

Posted by: Chuck S. at June 28, 2005 8:52 AM

Any time anyone makes an analogy that casts the government in any sort of favorable light, libertarians have to take an antacid tablet.

To cut down on the acid reflux, libertarians can replace "head of the family" with "your mean ex-con fratboy uncle who you just happened to elect to elect to manage things."

See - suddenly all the tummies are calm.

Posted by: James at June 28, 2005 9:16 AM

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