Here is a youtube clip.
For the email subscribers, you can watch it on RollingAlpha.com directly, or here is the youtube link: The Progressive Income Tax: A Tale of Three Brothers.
The basic summary:
- There are three brothers (triplets) who all practice the same trade and have the same skills. The are all married. Call them Tom, Dick and Harry.
- Tom works 20 hours a week, and Tom’s wife does not work.
- Dick works 40 hours a week, and Dick’s wife works as an estate agent for 10 hours a week.
- Harry works 60 hours a week, and Harry’s wife works full time as an office manager.
- Their annual incomes:
- Tom’s house brings in $25,000 per year.
- Dick’s house brings in $75,000 per year.
- Harry’s house brings in $150,000 per year.
- The brothers all buy houses in the same neighbourhood.
- After some time, they decide to do some repairs to the road, and build a security wall, being concerned about “crime and safety”.
- The bill was $30,000.
- What followed was an argument about the cost-split:
- Harry expected an equal split of $10,000 (basically, a regressive tax)
- Dick proposed a proportional split based on what each household earned (basically, a tax neutral split)
- Tom wanted Harry to pay 80% of the bill, Dick the balance, and Tom would pay nothing at all (a progressive tax, where the rich pay proportionally more of their income).
- By a vote of two-to-one, Tom gets his way. And poor Harry is called miserly and uncharitable if he complains about it.
I guess we’re meant to step away from this feeling horrified by the injustice of it all. After all, Harry works harder than everyone else, as does his wife. Why should they bear the brunt of the tax?
So most of my readers will know that I’m not the biggest fan of an extremely burdensome tax system. But even so, this argument is spurious.
And that’s because the underlying assumption is that the rich are rich because they “work harder”, and the poor are poor because they’re lazy. And if those lazy people would just get up and work more hours, then they’d have more money. Also, shame on them for being so poor.
Only, that’s not really true. Most poor people work very long hours. Here in South Africa, the working classes are up before dawn, catching taxis and walking to work. They then work all day, and catch the taxi home at night. I doubt that there’s too much of a difference between the working hours of the classes – and on balance, I’d guess that the poor probably work more hours than the rich. But certainly, it’s not enough to explain the differences in incomes.
The trouble is: if we’re honest, most of the difference between being rich and being poor has a lot more to due with providence and/or hitting the genetic jackpot than it does with anyone working more or less than anyone else. So trying to articulate the argument as one of “the rich deserve their riches while the poor deserve their poverty” is patently wrong.
But if it’s all luck…
Then the tale needs to be reframed. Because the way that I suspect it really feels to a rich person is this:
- There are three brothers (triplets). Call them Tom, Dick and Harry.
- Sadly, they are not all born equally good-looking:
- Tom suffers from really bad breath.
- Dick is an average Joe.
- Harry looks like a Calvin Klein underwear model.
- This has real implications for their dating lives. By their early thirties:
- Tom is unmarried.
- Dick has found himself a plain Jane.
- Harry has married a Victoria Secret model.
- Tom is unhappy with his lot, and threatens to revolt against everyone with a large shotgun unless he get to have a sex life.
- The compromise: Harry has to give Tom a conjugal visit with Victoria Secret once a month, while Dick has to permit the same with Jane twice a year.
- No one is satisfied, because:
- No husband likes to share his wife,
- No man likes to be second best, and
- The wives are outraged.
I realise that’s a much less acceptable way of describing the status quo. But we’re talking about money – and when someone takes money from you by force (or by statute), that will always feel like a violation.
And I’m just not sure that it feels like any less of a violation when someone tells you that “You have more than enough to spare…”
Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at www.facebook.com/rollingalpha. Or both.