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If you overtax the rich, they may not come to dinner

I was having dinner at a local restaurant with one of my good friends just prior to the tax deadline, and the conversation turned to the federal government's round of tax cuts offered two years ago. My friend thought he'd see a larger cut in his taxes for 2001.

"I'm now opposed to those tax cuts," the retired college instructor said, "because they benefit the rich. The rich get much more money back than ordinary taxpayers like you and me and that's not fair."

"That's debatable," I argued. "But even if it were true, the rich pay more in the first place, so it stands to reason that they'd get more money back."

I could tell that my friend was unimpressed by this meagre argument. Even some college instructors, apparently, are prisoners of the myth that the "rich" somehow get a free ride in Canada. Nothing could be further from the truth. Let's put tax cuts in terms everyone can understand.

Free dinner

Each and every day 10 men go to a restaurant for dinner, and the bill for all 10 comes to $100. If it were paid the way we pay our taxes, the first four men would pay nothing; the fifth would pay $1; the sixth would pay $3; the seventh $7; the eighth $12; the ninth $18. The 10th man (the richest) would pay $59. Although the 10 men did not share the bill equally, they all seemed content enough with the arrangement until the owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20."

Now, dinner for the 10 costs just $80. The first four are unaffected. They still eat for free. The question, of course, is how to divvy up the $20 savings among the remaining six so that everyone gets his fair share.

The men realize that $20 divided by six is $3.33, but if they subtract that from everybody's share, then the fifth and the sixth men would end up being paid to eat their meal. The restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same percentage 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 $14, leaving the 10th man with a bill of $50 instead of $59. Outside the restaurant, the men began to compare their savings.

"I only got a dollar out the $20," declared the sixth man, pointing to the 10th, "and he got $9!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got nine times more than me!"

"That's true," shouted the seventh man. "Why should he get $9 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 outraged men surrounded the 10th and brutally assaulted him. The next day 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 faced a problem that they hadn't faced before. They were $50 short.

Fair relief

And that, folks, is arguably how Canada's tax system should work. The people who pay the highest taxes should get the greatest relief from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up for dinner next time. After all, there are lots of good restaurants in Switzerland and the Caribbean.

If the truth be known, most of the tax relief offered in the last round of tax cuts was directed at middle-income Canadians, and not primarily at the wealthy. Are we due for more tax cuts down the road?

Finance Minister Paul Martin will tell you there is room for further cuts at some point -- although this may take a few years.

Suppose the next round of tax relief did primarily benefit the wealthy. Would we as Canadians complain? You bet.

Would Mr. Martin have the courage to offer this type of relief to the wealthy as President George W. Bush has done in the United States? Not likely. Would that type of tax relief be justified? Sure it would.

(A version of this "free dinner" parable first appeared in the Chicago Tribune on March 4, 2001, and was adapted by Ron Adams of Mall Arkey Investments of Salmon Arm, B.C.)

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