Taxes

This post is courtesy of a debate I was having here. Apparently semantics seem to get in the way of many people communicating properly. The guy I was arguing with adamantly was saying that 14% is less than 25%. He couldn’t seem to understand (until later in the argument and much back-peddling) that a percentage is a number of a number and you cannot just say 14% is smaller than 25% unless of course the base is the same, or the base for 14% is lower than the base for 25%. For example 14% of 100 (14) is less than 25% of 100 (25). But when calculating taxes, people have different salaries, deductions, etc. and you can’t say someone paying a 14% tax rate is paying less than someone paying a 25% tax rate unless, as I said, the base is the same or smaller. In the case of a millionaire and an average wage earner, it is not comparable. But the guy I was arguing with was rather adamant that the millionaire paid less in taxes because his tax rate was lower (until he back-peddled realizing his foolishness/ignorance). Go read for yourself. He clearly has a comprehension problem, but I shall not get into that here. And I should not have insulted him as I did… I feel bad about that. In any case, at some point he said that millionaires should agree to the Buffet Rule and pay a 35% tax rate. My argument is that we should not be so hung up on the tax rate, because the actual dollar amount paid is the real contribution. Someone paying $10,000 in taxes is paying 10 times more than someone that pays $1,000 regardless of their tax rate and regardless of their income. Their contribution is more, and that is undeniable. How is it “fair” that a millionaire should pay $350,000 and someone earning $33,000 pay $8,250? It is more than 42 times what the wage earner is paying! And it is quite disproportionate when people talk about what’s “fair”. I am not suggesting the wage earner pay more! I am suggesting the proportion not be so disproportionate, and even if the millionaire paid $175,000 it is still almost 22 times more than $8,250! 

In any case, to make my point I embarked on giving examples of how a percentage is a number of a number… Here is one that I have decided to elaborate on:

Let’s say that there is 1000 lbs of bricks that need to be moved 100 yards and each brick is 1 pound (so there are 1000 bricks to move).

I will now introduce Mr. A. He has been fortunate enough to grow up with a set of weights and a weight bench and he lifts every day to build strong muscles. We will say he is advantaged. Mr. A has the ability to lift 100 lbs at a time. Now let’s introduce Mr. B. He was not as fortunate and grew up rather weak and no weight set. Let’s say his is disadvantaged. Mr. B can only lift 10 lbs at a time.  

Neither thinks it would be fair for the other to do all the work. They decide to team up. But what would be most fair? To divide the bricks in half and each move 500 bricks. Now it works even better for Mr. A. He can make 5 trips and Mr. B would make 50 trips. They agree that still is not “fair”. They decide what really would be fair is an equal number of trips. Okay, maybe “fair” is the wrong word because you will clearly see Mr. A has to do more work, but I digress.

How do we figure out how much each should carry so they make the same number of trips? The weight itself will not be distributed equally. We have already concluded that Mr. A has the ability to carry more weight and has agreed to do so. If Mr. A carries 10% of his ability, he will carry 10 pounds (or 10 bricks) each trip. If Mr. B carries 10% of his ability, he will carry 1 pound (or 1 brick) each trip. That would take 91 trips. It sounds fair as each is moving the bricks at the same percentage rate. Until you look at it this way: Mr. A would move 905 bricks, while Mr. B moved 95 (the last trip each would carry half the bricks). Well, Mr. A wasn’t too fond of this plan because it would take almost 10 times more number of trips than if he just did it himself. So to compromise and to move the bricks faster, Mr A. agreed to carry 20% of his ability or 20 pounds (20 bricks) each trip and Mr B. agreed to carry 50% of his ability or 5 pounds (5 bricks) each trip. It will take 40 trips each to move all 1000 bricks. Mr. A’s percentage of ability per trip is lower than Mr. B’s. But who would be responsible for moving more? Of course Mr. A ends up moving more bricks (800 compared to Mr. B’s 200) meaning he moved more weight than Mr. B!  Maybe Mr B sweat more because it is more difficult for him, but Mr. A still did most of the work. 

Now compare that to how we calculate and pay our taxes. Who actually contributes more to the tax revenue? Is it still fair that we demand they carry more of the tax burden?